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Report Finds Overvaluation in National Home Prices

Phil Hall
Mar 13, 2015

A new report by Bank of America Merrill Lynch has determined that home prices nationwide are overvalued, with Houston-area properties leading the list at a 77 percent of overvaluation.

The report, which has not been made public yet and was obtained by the online site Newsmax Finance, found housing to be overvalued when compared to personal income growth, which is traditionally a primary driver for the rise or fall of property values. The report predicts a four percent rise in home prices this year.

“We find that national home prices are marginally overvalued,” said Michelle Meyer, an economist at Bank of America Merrill Lynch. “National home prices have increased 24 percent since the trough and the most recent data for December suggest 2014 ended with prices up 4.6 percent … The improvement was driven by those markets with the steepest drop, such as Las Vegas, Phoenix and Los Angeles. The gain in home price appreciation has since slowed in these regions as the markets move further away from the crisis period and are less influenced by distressed activity. This means that we should once again focus on the fundamental drivers of home prices: income growth and overall affordability.”

In a listing of major markets where home prices were compared to income growth, Houston came out as the most overvalued market.

“Although the regional economy has been reasonably healthy, price appreciation has outpaced that of local area income,” Meyer said. “The plunge in oil prices leaves the housing market in Houston vulnerable.”

The other most overvalued housing markets, according to the report, were Miami (43 percent); Washington, D.C. (27 percent); Portland (25 percent); Tampa (23 percent); Phoenix (20 percent); Dallas (20 percent); Denver (18 percent); Minneapolis (17 percent); and Los Angeles (16 percent).

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