The Houston housing market is one of the most dynamic in the country, with prices that have been steadily increasing over the past few years. But are these prices overvalued? According to a recent study by researchers from Florida Atlantic University and Florida International University, the answer is yes. The study ranked the Houston area as the 48th most overrated housing market in the country, with homes selling at a premium of 32 or 34%.In a national analysis of the top 100 housing markets, Houston ranked 51st on the list of the most overrated housing markets. Dallas was overrated by 46%, while San Antonio and Houston were both overrated by 28%.
The analysis also showed that many markets on the West Coast, including Los Angeles and Boise (Idaho), are starting to experience what is known as the price crown, or a stabilization of home price increases that normally precedes a slowdown in the market. Home prices increased by 19.8% over the past year, more than four times more than income growth over the same period. To obtain the housing bubble label, the market would have to experience both overvaluation of the price of housing and speculation in the market. Homebuyers looking for a bargain in Houston face an increasingly difficult market, but it isn't as overrated as other major metropolitan areas in Texas. Tight inventory, strong demand, and low interest rates continue to drive the Houston housing market and support rising prices, but they aren't rising at staggering rates like other cities have. This makes average housing in Houston more affordable, as developers can build large suburban communities at lower prices because land is cheaper. The rapid increase in population in the Houston metropolitan area, which is expected to grow by about 20 percent over the next decade, should help the region overcome almost any looming housing downturn.
Houston and much of Texas are not expected to be as affected as other overvalued markets by a future housing recession due to constant population growth and favorable economic trends. In Dallas-Fort Worth, home prices were overrated by 38 percent, and in Austin, by nearly 58 percent. Every month, researchers at Florida Atlantic University calculate how “overvalued” or “undervalued” home prices are in the 100 largest housing markets in the United States compared to the “implicit historical price” of the local market. Houston's housing market is certainly not immune to potential downturns or recessions. But with its strong population growth and favorable economic trends, it is likely to remain relatively stable compared to other cities that are more heavily overvalued. Homebuyers looking for a bargain should keep this in mind when considering their options.
