U.S. home prices increased 0.5% in January compared with December and were up 6.6% compared with January 2017, according to CoreLogic’s home price index report.
Nevada, Utah and Washington saw the biggest increases in home price appreciation for the month.
Currently, about 34% of the top 100 largest metropolitan have areas where the housing stock is considered “overvalued,” compared to market averages, according to CoreLogic Market Condition Indicators (MCI) data.
The MCI analysis categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals such as disposable income.
As of January, 27% of the top 100 metropolitan areas were undervalued and 39% were at value.
When looking at only the top 50 markets based on housing stock, 48% were overvalued, 14% were undervalued and 38% were at value.
The analysis defines an overvalued housing market as one in which home prices are at least 10% higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10% below the sustainable level.
Currently, CoreLogic forecasts the U.S. home values will increase 4.8% on a year-over-year basis from January 2018 to January 2019, with a 12-month increase of more than 7% projected for California, Florida, Nevada and Oregon.
“Entry-level homes have been in particularly short supply, leading to more rapid home-price growth compared with more expensive homes,” says Frank Nothaft, chief economist for CoreLogic. “Homes with a purchase price less than 75 percent of the local area median had price growth of nine percent during the year ending January 2018. Homes that sold for more than 125 percent of median appreciated 5.3 percent over the same 12-month period. Thus, first-time buyers are facing acute affordability challenges in some high-cost areas.”
“A rise in mortgage rates, coupled with home-price growth, further erodes affordability,” adds Frank Martell, president and CEO of CoreLogic. “CoreLogic has identified nearly one-half of the 50 largest metropolitan areas as overvalued. Millennials who are looking to become first-time homeowners find it particularly challenging to find an affordable home in these areas. Our projections continue to show tightness in the entry-level market for the foreseeable future, which could further prevent Millennials from purchasing homes in 2018 and 2019, even as much of that generation reaches its prime home-buying years.”