Rapid price increases in real estate can result in certain markets becoming overvalued. Conversely, properties trending at prices lower than perceived market value can result in housing areas becoming undervalued.
Forbes recently explored the 10 most overvalued housing markets in America, using research data collected by Fitch Ratings. The overvalued and undervalued markets compared home price trends against a set of common factors that measured local markets (unemployment rates, population growth, mortgage rates, and so on). The study revealed interesting trends in market values, especially for overvalued housing markets, four out of five of which are in California. The spike in home prices in major California markets can be attributed to a historically low inventory.
Here are the five most overvalued housing markets in America:
San Diego, CA
Listed for $165,000, this one-bedroom, one-bathroom condo in San Diego’s Mission District represents the approximate median home price ($167,840) for the area. San Diego has seen a year-over-year price increase of 7 percent and a 50 percent increase since 1998.
Realtor.com currently lists over 2,800 properties currently on the market in San Diego with an average listing price of $306,460. By comparison, more than 8,200 homes have recently sold in the area at an average of more than $500,000.
The Washington, DC, market has seen a 4 percent year-over-year increase in median home price and a 54 percent jump since 1998. With an asking price of $189,000, this 360-square-foot loft is just below the median home price for the area ($189,799).
More than 1,700 homes are for sale on realtor.com in the DC market, where the average list price now trends at slightly over $740,000. There have been more than 2,800 recent transactions in the area, with homes selling at an average of roughly $590,000.
Los Angeles, CA
With a list price of $185,000, this 1,100-square-foot hacienda is $1,300 less than the median home price for Los Angeles, CA. L.A. has seen nearly a 9 percent increase in median home price over the last year and a 57 percent spike since 1998.
According to realtor.com data, the average list price for the more than 3,500 L.A. homes on the site is currently trending at a little over $291,000. In comparison, the area has seen more than 6,400 recent home sales, with properties selling at an average price of approximately $675,000.
San Francisco, CA
In San Francisco, the average median home price is currently $153,940, which is roughly $4,000 more than what this 1,250-square-foot townhome currently lists for. San Francisco real estate has seen a tremendous spike over the last year, with the median home price increasing by 11 percent. Over the last 15 years, the median home price has increased by 41 percent.
There are more than 900 properties for sale in San Francisco, and they have an average listing price of $375,000, according to realtor.com data. There have been more than 3,100 recent transactions in the city, with an average sold price of nearly $1.1 million.
San Jose, CA
The Silicon Valley city has seen prices soar thanks to job growth in the tech sector and a low inventory. Median home prices have seen an increase of 15 percent over the last year and a 44 percent uptick over the past 15 years.
The four-bedroom, three-bathroom home in San Jose is just one over 1,800 homes currently available on realtor.com. Its asking price, $919,900, is roughly $5,000 less than the average list price in the area. The average sold price for the more than 4,600 homes sold in San Jose is approximately $624,000.