Southern California home prices 7% too high
Bubble Watch digs into trends that may indicate economic and/or housing market troubles ahead. Buzz: Southern California home prices ended 2021 roughly 7% overvalued. Source: My trusty spreadsheet looked at a report by Wall Street credit scorer Fitch Ratings comparing fourth-quarter home prices in 381 U.S. metropolitan areas — 26 in California — with their underlying economic fundamentals, including changes in local rents.
The trend
Homes in Los Angeles and Orange counties were 7.3% overvalued, by Fitch’s math. That’s the 15th-highest overvaluation in the state, and it’s higher than 40% of all U.S. metros that were studied.
In the Inland Empire, overvaluation ran 7.2% — No. 16 in California and higher than 39% of U.S. metros.
It could be worse: Boise City, Idaho, was the nation’s most overvalued market with prices 25.9% too high. Next came two Florida markets — Naples (25.5%) and Pensacola (25%).
Just 37 of the 381 markets were deemed “undervalued” — with Carbondale, Illinois, the best value at 17.4% too low. Next was Morgantown, West Virginia (9.5%), and Northern California’s Santa Rosa (8.7%).
The dissection
Let’s take a deeper look at California.
San Francisco was the most overvalued metro, with prices seen as 17.1% too high. That overvaluation topped 88% of all U.S. metros.
The aforementioned Santa Rosa was the best “value” in the state, by this math.
Other double-digit overvaluations were San Diego (15%), Sacramento (11.9%), Visalia (11.7%), Santa Barbara (11.6%), Yuba City (10.8%), San Jose (10.5%), Bakersfield (10.5%), Modesto (10.2%) and Mer
ced (10%).
Smaller overvaluations were Madera (9.8%), Salinas (9.4%), San Luis Obispo (8.8%), and Ventura County (8.3%) — then came L.A.-OC’s 7.3% and the IE’s 7.2% — followed by Stockton (5.5%), Fresno (5.4%), Vallejo (5%), Chico (4.2%), Hanford (4.1%), Redding (3.4%) and Santa Cruz (3.4%).
Also undervalued were El Centro (by 4%) and Napa (by 5.3%).
How bubbly?
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … ONE BUBBLE!
The median overvaluation of the 26 California metros was 8.5% compared — that’s above SoCal scores but better than the national median of 9.1%.
However, you might say this is ancient history, in homebuying years. Plenty has changed since 2022 started — like a historic surge in mortgage rates.
Still, these valuations suggest many California housing markets were relatively sanely priced before homebuying swiftly got far pricier this year.