After U.S. home prices increased 6.6% in the year to January, housing values in 34% of the U.S.’s 100 largest metropolitan areas are now considered overvalued, according to a report Tuesday by global property analysts CoreLogic.
The report defines an overvalued housing market as one in which home prices are at least 10% higher than the long-term, sustainable levels—determined by local market factors like disposable income—while an undervalued housing market is one in which home prices are at least 10% below the sustainable level.
Of the top 100 metropolitan areas analyzed, 27% were considered undervalued and 39% were at value, the report said.
When narrowing the analysis to just the top 50 markets, 48% were overvalued, 14% were undervalued and 38% were at value.
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“A rise in mortgage rates coupled with home-price growth further erodes affordability,” said Frank Martell, president and CEO of CoreLogic in the report. “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.”
Home prices are projected to increase by a further 4.8% by January 2019, CoreLogic predicts.
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