Some local markets are once again going beyond sustainable prices and becoming overvalued. Las Vegas, Phoenix, Riverside, California, and Miami were all the poster children for the housing boom and bust in the last decade. Housing in these markets crashed dramatically, with properties losing more than half their value and homeowners losing a substantial chunk of their net worth.
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"Now, these cities are back on the rise, with prices in each up more than 45 percent since the low reached in 2011. Significant numbers of underwater mortgages remain, holding down supply, and demand has been bolstered by outside investors. With these unique market pressures, all four have climbed near the top of the Sustainable Home Price (SHP) model's most overvalued city list," Fitch Ratings' Director Stefan Hilts wrote in a new report.
Even these cities, however, do not top the list of overvalued markets. Instead, Houston and Austin, Texas, do. Neither of these markets were particularly frothy during the housing boom, nor did they suffer as dramatically as the rest of the country during the bust. Driven by strong local economies, housing flourished on its own merits.
"These are the cities experiencing a classic boom. Although Fitch identifies many of these cities as overvalued, this is from over-exuberant growth, rather than a lack of strong fundamentals," Hilts said.
There is growing concern, of course, that the drop in oil prices will trickle down through the overall Texas economy and weaken both the employment and housing markets. There is still very tight supply, given demand, in major Texas markets, but builders are holding a magnifying glass over the state for fear of missing even the slightest cracks.
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Unlike Texas, other over-valued markets are seeing price gains based not on strong fundamentals of their economies, but on very tight supply.
Jennifer Castillo, 28, and Justin Thornton, 29, are house hunting in Washington, D.C., hoping to buy their first home together. The D.C. market is overvalued by 10 to 15 percent, according to Fitch, largely due to tight supply. That is making it very hard for the couple, who are both employed, to find not only something they like, but something they can afford.
"It's gone beyond sticker shock, because what it's actually listed for is not the price that the home actually sells for," bemoaned Castillo. "People are outbidding us, offering much more that us."
In some cases, the offers are so high that they go well beyond the appraisals, scuttling the sale.
"It's a bit overwhelming, as a seller you have to navigate though five, 10, 15 offers," said Sacha Moise, an agent with Evers Real Estate, who is the couple's agent. "Prices are so close now that you see bidding wars, and the appraisal contingency is kind of what can make or break that deal—whether the buyer has that cash to make up the balance."
It is the same story coast to coast. San Francisco is the nation's frothiest housing market by many standards, due to high demand and very short supply. Prices there rose to record heights in the past year, but even that city is showing there's a limit.
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San Francisco home values were still up 7.9 percent in January from a year ago, according to S&P/Case Shiller, but that is down from 9.4 percent in December. It is leading the nation in declining annual returns.
As the spring market heats up, demand is already increasing dramatically, but supply is not. Builders are not keeping even close to pace with potential buyers, and not enough potential sellers are listing their homes for fear of not being able to find something affordable to move into.
—CNBC Real Estate producer Stephanie Dhue contributed to this report.