New Reports Predict Another Southern California Housing Bubble Is Unlikely

A new report out Tuesday from real estate website Trulia, which monitors bubble conditions by tracking home prices relative to household incomes and long-term norms in markets nationwide, says that any fears of a new housing bubble look increasingly unfounded. Trulia looked at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends using multiple data sources, including the Trulia Price Monitor, as a leading indicator of where home prices are heading. 

While the Los Angeles Times reports that Southern California remains home to the most overpriced housing markets in the country, prices here have cooled off this spring giving the job market time to catch up. Even though Trulia says three of the four most “overvalued” housing markets in the nation are in Southern California — Orange County, Los Angeles County and the Inland Empire — those markets are far less overvalued than they were in the mid-2000s when risky lending pushed prices beyond what household incomes would bear. The Trulia report also suggests that we’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not, and the market is neither overbuilding nor overlending.

While Los Angeles homes are currently overvalued by roughly 15%, according to Trulia, to get an idea of how crazy things were last year, keep in mind that during the 2013 home price surge L.A. homes were overvalued by 79% and Orange County homes by 92%! Nationwide, Trulia says, homes are undervalued by 3% but they expect price will return to long-term averages by the end of this year or early 2015. Definitely some interesting, positive news to ponder.