More Than Half Of American Homes Are Overvalued, CoreLogic Warns

A history of economic cycles dating back to the mid-1800s reveals a troubling outlook for today’s Central Bank induced bull market of hopes and dreams, which could be in the later innings.

It is quite evident that Americans have quit saving as their gig-economy jobs have left them in financial ruin - now being squeezed by the higher cost of living.

The charades of economic stability could continue for a little longer, with President Trump’s stealth quantitative easing program to Wall Street via debt-financed tax reform, which has induced a massive wave of more than $2.5 trillion in stock buybacks — a gift to corporate America.

No matter where one looks, the valuation of many financial assets are overextended, and new evidence today from CoreLogicshows this troubling picture very late into an economic cycle: More than half of U.S. residential real estate markets were overvalued in April.

CoreLogic reports that residential real estate prices nationwide increased 6.9 percent year over year from April 2017 to April 2018. The firm’s Home Price Index (HPI) also shows a 1.2 percent rise on the month-over-month basis from March to April 2018. This has certainly sparked the debate of housing affordability across the nation with many millennials struggling to achieve the American dream.

CoreLogic Market Condition Indicators showed that 40 percent of the 100 largest metropolitan areas were overvalued in April, compared to 28 percent undervalued, and 32 percent in line with valuations.

The report uncovers a shocking discovery that of the nation’s top 50 largest residential real estate markets, 52 percent were overvalued in April.

CoreLogic’s methodology behind overvalued housing markets “as one in which home prices are at least 10 percent higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10 percent below the sustainable level.”

“Affordability” must increase ASAP or housing is in big trouble up here. It will happen, but not thru a wholesale credit easing like 2003. (Source: @MrMarkHanson)

Home Price to Income Ratio Near 2008 Bubble Levels

Historically a house in the US cost around 3 to 4 times the median annual income. During the housing bubble of 2007 the ratio surpassed 5 – in other words, the median price for a single-family home in the United States cost more than 5 times the US median annual household income. According to Mikey Maloney, this ratio is heavily influenced by interest rates. When interest rates go down the affordability of a house goes up, so people spend more money on a house. Interest rates have now been falling since 1981 when they peaked at 15.32% (for a 10-year US treasury bond).

“The best antidote for rising home prices is additional supply,” said Dr. Frank Nothaft, chief economist for CoreLogic.

“New construction has failed to keep up with and meet new housing growth or replace existing inventory. More construction of for-sale and rental housing will alleviate housing cost pressures," Nothaft added.

In a recent op-ed piece via The Wall Street Journal, Paul Kupiec and Edward Pinto place the blame on the government for creating another real estate bubble through “loose mortgage terms pushing home prices up.” They claim that mortgage underwriters need to tighten standards.

Home prices are booming. So far, 2018 has posted the strongest growth since 2005. “About 60% of all U.S. metros saw an acceleration in the rate of price increases through February this year,” according to Housing Wire. Since mid-2012, real home prices have increased 28%, according to data from the American Enterprise Institute. Entry-level home prices are up about double that rate. In contrast, over the same period household income has barely kept pace with inflation. The current pace of home-price inflation is increasing the risk of another housing bubble.

The root of the problem is declining underwriting standards. In April Freddie Macannounced an expansion of its 3% down-payment mortgage, the better to compete with the Federal Housing Administration and Fannie Mae . Such moves propel home prices upward. Because government agencies guarantee about 80% of all home-purchase mortgages, their underwriting standards guide the market.

Making lending even more dangerous, CNBC recently reported that “credit scores may go up” because new regulatory guidance allows delinquent taxes to be excluded when calculating credit scores. These are only some of the measures that “expand the credit box” and qualify ever-shakier borrowers for mortgages.

During the last crisis, easy credit led home prices to rise at an unsustainable pace, leading marginally qualified borrowers to stretch themselves thin. Millions of Americans’ dreams became nightmares when the housing market turned. The lax underwriting terms that helped borrowers qualify for a mortgage haunted many households for the next decade.

To sum up, the current unsustainable pace of overvalued home-price appreciation throughout more than half of the nation’s top real estate markets could soon hit serious resistance, as affordability becomes a more significant concern and the overall central bank induced bull market nears its later innings. So what does this mean for millennials who have recently purchased a home? You likely bought near the top.


W.M. Worry COSMOS Fri, 06/08/2018 - 10:14 Permalink

Bingo!  Housing has kept up with true inflation, wages and Government statistics have not. There's no more profit in building a house at these price levels than there was 20 years ago. Although 20 years ago houses all had carpet and vinyl flooring, fiberglass tub/showers, and Formica countertops. Now everyone expects hardwood, tile, and quartz countertops.

In reply to by COSMOS

HRH of Aquitaine 2.0 Bigly Fri, 06/08/2018 - 00:37 Permalink

Same here. My PITI is $1020 a month. (Yes, I overpay on principal every month, too). I couldn't rent for that price in my area.

I haven't looked on Zillow, recently, but just did after typing in my address. Interesting information from the price the original owner paid for my house, the price I paid, property taxes, photos. Very interesting information. It also shows the rental estimate for my place: $1700. Wow! I had no idea! Worth taking a sec to type in your address. I had no idea so much information was available, no account necessary. The information was correct except for the most recent property tax changes.

It was shocking as to how much information I could see. You don't need a realtor to do comparables, now. You can go on Zillow and see everything.

In reply to by Bigly

RTUT HRH of Aquitaine 2.0 Fri, 06/08/2018 - 02:36 Permalink

Zillow is great.  I have a rental, it was my first home I paid off as soon as I could.  I am amazed that people can afford to rent it.  Also, county property tax records are available on line through your county.  Most accept property tax payments on line.  If you want to see what your neighbor paid for his house, type in his address on the county search engine.  

In reply to by HRH of Aquitaine 2.0

HRH of Aquitaine 2.0 RTUT Fri, 06/08/2018 - 02:48 Permalink

I didn't realize the system had gone so far! Wow! The information, and it is free, was incredible! That was all the information you used to pay a realtor to get for you!

I am looking to turn my house into a rental and look for a more affordable, low key place to live. Zillow will be a great tool to use as I travel and search for my next home / base! I am planning on renting out my house and living in a Class C RV for a year or too. I really can't afford to continue to live in my house and throw away that profit. It doesn't make sense. I am going to have a scheduled surgery and then get on with downsizing, living in an RV, and renting until I find a new place to buy. The best part is after having my house as a rental for a year or two it will also show that I have cash flow plus added equity so when I go to buy my next place, it should be much easier!

A local credit union offers RV loans, private party, on units that are 15 years old or newer! That is amazing! I can dump my SUV and buy an RV (I want one that is between 5 to 10 years old) and live in it. I have a discount, as a veteran, on one vehicle so it is to my advantage to register the RV as my primary vechicle and sell my SUV. The good part is I see this not just as a cost saving measure but as an adventure and a way to improve my quality of life.

Exciting year ahead, after my GI surgeon cuts me open! He is a (former, gasp!) marine, so Semper Fi!

In reply to by RTUT

bitterclinger67 HRH of Aquitaine 2.0 Fri, 06/08/2018 - 11:20 Permalink

Zillow isn't all that great on accuracy of current market value.  It DOES consolidate PUBLIC DATA, so that you don't have to go back and for between assessor website and recorder websites and searching for houses that are comparable.  

For value, unless you live in a very homogenous area, where all of the homes in a zip code are the same age, style, size, etc....then MAYBE value will be reaonsable. Otherwise it's crap.

Having been an underwriter at Chase, they have a free, no login home evaluator. just internet search for chase home evaluator (make sure it's the actual chase page, some sites are copycats and try to force you to sign up for stuff as an overlay on top of the chase model). While I was there, they were actually using the evaluator model as the home equity value on 2nd mortgages.  It won't give you all of the underlying data from previous sales/taxes, but it will do a better job of pulling comps and value.

In reply to by HRH of Aquitaine 2.0

Md4 Fri, 06/08/2018 - 00:28 Permalink

“In a recent op-ed piece via The Wall Street Journal, Paul Kupiec and Edward Pinto place the blame on the government for creating another real estate bubble through “loose mortgage terms pushing home prices up.” They claim that mortgage underwriters need to tighten standards.”


Certifiably, clinically insane.

In a supposedly “booming” economy with sub-4% unemployment...the bastards have to tighten up their “loose standards”...

We got borrowed corporate money buying back shares of their own stock (cheating/fraud)...

...and we’ve had an absolutely criminally insane obsession with shacks (yet again) to the severe detriment of millions of people unable to engage that vile racket.

That’s your economy...

It is all we have.

bitterclinger67 Md4 Fri, 06/08/2018 - 11:29 Permalink

Not to mention, as an underwriter...just TRY to tighten up your standards. I fuqqing dare you. The sales team will have your a$$ and you'll be on the street withing 30 days.   FNMA guidelines...are already loose as hell....that's not the underwriters fault.  How are you supposed to 'tighten up' when FNMA says that it's okay to do this or that...or go to 50% as long as DU says so.   DU doesn't even require depth of credit anymore. Even in the 00's, no depth of credit on a fake 750 fico for someone who's never had any credit was an issue. Not anymore.    It's NOT the underwriting issue. It's homebuyers and sales people whining and complaining that they can't get people qualified.   

At one point in time in the 00's, a couple of us contacted the president of Accredited and told Konrath that we were being FORCED to give multiple exception and not downgrade loan quality, specifically for the purpose of 'approving' shyte loans. I got written up by HR, I quit within 60 days of that, and within 6 months after that Accredited folded and then filed for BK.    IT'S NOT THE UNDERWRITERS.  Nobody wants us to be tougher. Nobody. It's everyone else whining that we are too tough already.

In reply to by Md4

Ghost who Walks Fri, 06/08/2018 - 01:34 Permalink

This problem is not unique to America. The situation is probably as bad in Australia.

Once the value of the assets securing a loan drop, it can trigger action from the note holder. If we are talking residential properties, the loan books of the big four Australian banks are sitting at about 60% of total loans that are on residential property.

At least one group in Australia called the Citizens Electoral Council is trying to get banking legislation changed to a Glass-Steagall model of banking separation before the crisis happens.

RTUT Fri, 06/08/2018 - 02:28 Permalink

I noticed that the higher the value of the home, the more property taxes the state and city collect.  I think there is a connection between the amount of money the state needs and the increased valuation of property each year.

silver140 Fri, 06/08/2018 - 02:38 Permalink

"More than half of U.S. residential real estate markets were overvalued in April."


The whole US residential real estate market was overvalued even when it was "undervalued". The real value is about 1/15 of current prices. IMHO

Captain Nemo d… Fri, 06/08/2018 - 03:33 Permalink

How sensitive are the results to assumptions that go into calculating the long-term sustainable value? Just because historically the price is three times the annual median income does not mean it has to be the same way ...we have Bitcoin and iDiots now. The world has globalized and digitized. An impeccable AI will soon rule over us fairly and impartially. And, by the way, the rich via their corporations will buy up everything and charge rent which will be 2-3 times the annual household income. The "value" as defined by what the markets will pay to buy something will make all sustainability proxies nonsense. This has been a Bernank 20/20 2020 vision.

Blurb Fri, 06/08/2018 - 06:24 Permalink

This is true for my place. The effect for me is that it raises my taxes and probably my home insurance. I cannot believe what similar homes are selling for and I am thankful I got in when I did because NO WAY would I pay today's prices!

These are tract homes in the desert -- going for half a million. If I didn't have little irrigation tubes running under the 'xerascape' then the place would be wild desert. If I didn't pay a bug guy to come by every few months the place would rot. Every day the desert does its best to reclaim this house and it costs money to prevent that. 

I have no kids, no debt, and no mortgage but my neighbors have all three. Some of them put zero down and I have also noticed some have done the 'cash-out refi' to re-do their landscaping or put in a pool, etc. I would not be able to sleep at night if I were them. They are stuck as sure as a fly in a web. 

BunkerZee Fri, 06/08/2018 - 06:49 Permalink

It's been paid off for years - as long as my real-estate taxes don;t go up with these soaring home prices, and they cannot by a homestead limitation in Florida. Glad i bought when I did - no way I would pay what its' allegedly valued at now.

venturen Fri, 06/08/2018 - 07:41 Permalink

Break up the mega banks or it is just going to get worse! We also need to change the tax code to tax WEALTH...not income....where joe six pack pays 50% of his income and has nothing and Bezos and Buffet pay less than 1% of their wealth/income

currency Fri, 06/08/2018 - 07:54 Permalink

I would say a lot more the half are over valued and the dummies who think prices will go higher and higher are fools.

This includes the flippers and those so called retail investors who think it is a good time/investment to buy real estate.

Real Estate is going to collapse worse than 2008/9

Blankfuck Fri, 06/08/2018 - 08:29 Permalink



A2SavvyGirl Fri, 06/08/2018 - 09:55 Permalink

As a Real Estate Broker, I can tell you WHY the homes are overvalued in my area. Very simple: Supply and Demand. 

  • Not as much inventory
  • People with cash winning bids
  • Homes appraising at value due to demand. When you show up to meet the appraiser and have 4 bids over asking price, it is hard for an appraiser to not value the property at that price. 
  • Neighbors hear how much their neighbor's sold for. 
  • We are on our 3rd year like this. 
  • I sold a home a few months ago 50K over asking price, small brick ranch. Ridiculous but she lost out on one where she bid 35K over. 

Buyers are writing in language of the contract: Buyers willing to make up any appraisal gap. So if home appraises below the asking price, buyers bring in the extra cash. So sellers are accepting that high price knowing it doesn't matter what the bank says it is worth. 

THEN the house is marked SOLD in the MLS at a ridiculous price but the appraiser can use it for a comp in an appraisal.