5 states where housing prices are dangerously high

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When most people hear the term “real estate price bubble” or “housing bubble”, they are probably thinking about the financial crisis of 2007-2008. However, the average person knows little about the “bubbles” that go beyond their relationship to the recent economic collapse.

Today, most experts agree that at the national level we do not have a “bubble” in the real estate market. But the absence of nationwide or state housing “bubbles” does not mean that they are not formed, or that they do not yet exist in some states at the local level.

Go BankingRates analyzed data on the housing market and key economic indicators and contacted several real estate experts to identify those states that may be on the verge of a "housing bubble".

Based on the information found, the US 5 states dangerously inflate real estate prices and are most at risk of a bubble.

California

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California was one of the states that suffered the most from the real estate bubble in 2006 and the collapse. Today, the state may experience this again because housing offers are so limited that they are pushing residents to buy houses in accessible places or move, Gower said.

“The number of homes on the market is surprisingly 16% less than last year. Current inventory is up to 3 months or so, compared to the usual level of 7 to 8 months,” he said. “This adds pressure on pricing.”

More homes are now being rented out, reducing supply and increasing home prices. “But prices are rising so quickly that fewer and fewer people can afford them,” Gower added.

According to ZillowIn these Californian cities the price-wage ratio is the most uneven:

• Napa: 7,5
• San Diego: 7,6
• San Luis Obispo: 8,6
• San Francisco: 9,1
• San Jose: 9,23

Los Angeles County Long Beach Anaheim has an approximate price-earnings ratio in 9,23, which is slightly higher than in San Jose. However, Santa Cruz is in the lead, where housing prices are about 11 times the average household income.

Florida

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Florida was among those states that were badly hit during the financial crisis. Recently, housing prices in Florida have begun to rise again.

“Real estate is an asset class that is extremely susceptible to bubbles because it has no inherent value,” said Philip Lang, chief operating officer and co-founder Triplemint, a full-service brokerage firm. “Its significance is driven by the relative prices of other properties in the region.”

If the housing market is in high demand, it can affect neighboring markets by raising housing prices nearby. On the other hand, if housing prices fall in one market, they can lower prices in other markets in the area.

According to Realtytrac, US home resales are reaching record levels not seen since 2006, the peak of the last housing bubble. Florida is one of the main culprits this time.

Money earned on the resale of homes, set new records in 2016 year, fueling competition and further increasing the rate of resale.

There are other warning signs, such as a sharp decline in sales. In Miami, sales of residences and single-family villas are falling, while new homes overwhelm the market with supply.

Texas

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Texas is generally not in a bubble, said Chandler Crouch, founder and chief broker Forth WorthTexas However, some cities and regions show signs of a real estate bubble, especially those that depend excessively on one or two industries for their livelihood, he said.

“Midland is in a bubble, their economy is largely fueled by oil,” Crouch said. “Houston, Austin, San Antonio are on the border.” However, they all have housing markets that are seriously overpriced.

According to Fitch Ratings, housing prices in Austin and San Antonio are inflated by almost 20%. By comparison, at the peak of the housing bubble, Austin was overvalued by about 5% and San Antonio by 4%. Dallas and Houston are also more overvalued than at the height of the last bubble.

But why is revaluation important for real estate bubbles?

People believe that an asset, often real estate, will become more and more valuable in the future. If it becomes more valuable it will bring in more income, that's one thing,” said David Reiss, a real estate expert and law professor at Brooklyn Law School. “But if it becomes more valuable just because people think it will become more valuable, then that’s different. At some point, people start thinking differently, and the current owners are left with an asset that is worth less than what they bought it for.

Like in Florida, resale homes are growing in Texas. According to Realtytracin index markets in Texas, it is reported that at least 20% of all home sales in 2016 were resales.

Washington

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Washington is no stranger to rising prices. For example, the cost of living in Seattle is growing rapidly, given that half of the inhabitants of Millenia who are seriously thinking about moving.

Home prices in Seattle have increased significantly. Over the past 5 years, the average price has risen from $349 in May 950 to $2012 in May 650—an increase of almost 000%. According to Realtytrac, in each county, the housing market in Seattle experienced a serious decline in accessibility between the first and second quarters of 2017.

There would be less cause for concern if revenues did not lag behind this growth. But it is not.

On average, revenues in major markets such as Olympia, Spokane, Wenatchee and Seattle are lagging behind housing prices, which are growing faster. Bellingham is one of the worst cases: the ratio of price and income is about 5,8, which is 72% higher than in the past.

The local economy is booming, but wage growth is not keeping pace with real estate prices. For example, the average price of housing in King County, Washington increased by 15% over the same period last year and increased by 3% on average over the week.

Colorado

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According to Fitch Ratings the housing market in Colorado is overvalued.

In Colorado, housing prices in large markets such as Fort Collins and Boulder are not just overvalued, they are more overvalued than they were at the peak of the bubble in the 2005-2006 market, which is hardly a promising sign.

The average cost of housing in Denver and Fort Collins is about 5 times higher than the average.

"High home prices don't necessarily equate to a bubble," said Jeff Shaffer of McKinley Partners, a private equity company. “A typical bubble starts with high prices, causing capital to quickly flow into the area due to attractive returns. So, high home prices could trigger a bubble, especially in markets like Denver,” he said.

According to Realtytrac, Denver County has the lowest availability in the country as of the second quarter of 2017. This means that it has minimally affordable prices compared to historical averages. Adams County and Arapaho District are also among the worst housing affordability.

Read also on ForumDaily:

How to choose the area for the purchase of real estate

What is real estate loan refinancing, and how to do it

11 steps when buying a home in the USA

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