“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: Southern California home prices ended 2021 roughly 7% overvalued.
Source: My trusty spreadsheet looked at a report by Wall Street credit scorer Fitch Ratings comparing fourth-quarter home prices in 381 U.S. metropolitan areas — 26 in California — with their underlying economic fundamentals, including changes in local rents.
Homes in Los Angeles and Orange counties were 7.3% overvalued, by Fitch’s math. That’s the 15th highest overvaluation in the state, and it’s higher than 40% of all U.S. metros that were studied.
In the Inland Empire, overvaluation ran 7.2% — No. 16 in California and high than 39% of U.S. metros.
It could be worse: Boise City, Idaho was the nation’s most-overvalued market with prices 25.9% too high. Next came two Florida markets — Naples (25.5%) and Pensacola (25%).
Just 37 of the 381 markets were deemed “undervalued” — with Carbondale, Ill., the best value at 17.4% too low. Next was Morgantown, W.V. (9.5%) and Northern California’s Santa Rosa (8.7%).
Let’s take a deeper look at California.
San Francisco was the most overvalued metro with prices seen as 17.1% too high. That overvaluation topped 88% of all U.S. metros.
The aforementioned Santa Rose was the best “value” in the state, by this math.
Other double-digit overvaluations were San Diego (15%), Sacramento (11.9%), Visalia (11.7%), Santa Barbara (11.6%), Yuba City (10.8%), San Jose (10.5%), Bakersfield (10.5%), Modesto (10.2%) and Merced (10%).
Smaller overvaluations were Madera (9.8%), Salinas (9.4%), San Luis Obispo (8.8%), and Ventura County (8.3%) — then came L.A.-O.C.’s 7.3% and the I.E.’s 7.2% — followed by Stockton (5.5%), Fresno (5.4%), Vallejo (5%), Chico (4.2%), Hanford (4.1%), Redding (3.4%) and Santa Cruz (3.4%).
Also undervalued were El Centro (by 4%) and Napa (by 5.3%).
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … ONE BUBBLE!
The median overvaluation of the 26 California metros was 8.5% compared — that’s above Southern California scores but better than the national median of 9.1%.
However, you might say this is ancient history, in homebuying years. Plenty has changed since 2022 started — like a historic surge in mortgage rates.
Still, these valuations suggest many California housing markets were relatively sanely priced before homebuying swiftly got far pricier this year.
Jonathan Lansner is business columnist for the Southern California News Group. He can be reached at email@example.com
Source: Orange County Register