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Forbes’ most overvalued housing markets

Forbes and Fitch Ratings point to over-hyped West and Southwest regions
  • The combination of employment growth and heightened demand for housing has moved prices at an uneven rate with the rest of the economy.
  • Both Austin and San Antonio's housing markets were overvalued by 19 percent in the rankings, putting them in a tie for most overvalued markets in the U.S.
  • San Francisco home were 14 percent overvalued in the list, pushed by exorbitant rent costs, pricey real estate sales and fewer listings.
Fotoluminate LLC / Shutterstock.com

Austin / Fotoluminate LLC / Shutterstock.com

It’s easy to correlate pricey with overvalued real estate, but that’s not always the case. In fact, four out of the five most overvalued housing markets in the U.S. — Austin, San Antonio, Phoenix and Las Vegas — are not unaffordable by most standards.

Rather, the combination of employment growth and heightened demand for housing has moved prices at an uneven rate with the rest of the economy.

In a study released by Forbes, Fitch Ratings compiled the list based on its 2016 Q1 Sustainable Home Price model. This report compares home prices to economic essentials: unemployment, income, population and mortgage rates. When home prices are moving more rapidly than the rest of the economy, the Fitch Ratings finds the market is overpriced.

Heightened home prices in the Southwest

While Texas has acted as a haven for businesses to score lower-cost manufacturing and tech entrepreneurship, the energy boom and lower oil prices have stifled economic growth. However, Austin and San Antonio still bring more employees down south, creating more demand for housing.

In Austin, gross metro product rose 18 percent since July 2011, when the market bottomed out, according to the Fitch Ratings. San Antonio experienced a similar boost with a 9 percent rise in gross metro product between January 2012 through the end of 2014.

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Riverwalk in San Antonio. f11photo / Shutterstock.com

Riverwalk in San Antonio. f11photo / Shutterstock.com

Home prices in both Texas markets have appreciated rapidly, creating a rift in economic consistency.

According to the Forbes list, both Austin and San Antonio’s housing markets are overvalued by 19 percent, putting them in a tie for top two most overvalued markets in the U.S.

San Francisco also overvalued

A common narrative in San Francisco surrounds the general justification for steep real estate due to tech-sector jobs and a high median income. But the Fitch Ratings say they aren’t moving together at a healthy rate, mostly because of inventory issues.

Homes in San Francisco are 14 percent overvalued, Fitch says, pushed by both exorbitant rent costs and pricey real estate sales combined with fewer listings. Home prices in the city moved up 7.9 percent year-over-year to reach $770,300.

Lack of supply and heightened demand due to income potential puts San Francisco in a precarious place.

Overall takeaway for housing overvaluation

Phoenix and Las Vegas ranked as the no. 3 and no. 4 most overvalued housing markets, respectively.

What do these markets have in common? Demand is outpacing supply, for starters. But an important factor is how high demand spurred. All five markets share an impetus of strong job and wage growth, which fails to pace with housing prices as low inventory and high demand reign.

Email Jennifer Riner