Link to Fitch Ratings’ Report: U.S. RMBS Sustainable Home Price and Economic Risk Factor Report – November 2013
Fitch Ratings-New York-06 November 2013: As U.S. home prices continue to increase nationally, several cities are approaching inflated bubble-year peaks, according to the latest sustainable home price update from Fitch Ratings.
U.S. home prices have risen 13%. However, Fitch sees the growth as unsustainable. In fact, national prices are approximately 17% overvalued as per Fitch’s Sustainable Home Price (SHP) Model. Many of those cities, not surprisingly, are in California, according to Director Stefan Hilts.
‘Home prices in San Francisco have gone up over 20% year-over-year, the highest rate of increase than at any point in the last 10 years,’ said Hilts. ‘In fact, San Francisco and San Jose will set new home price records in the next six months.’ Fitch’s SHP model currently identifies much of coastal California to be more than 20% overvalued. Other California cities nearing bubble-year peaks include Oakland, San Diego and Los Angeles.
Perhaps the biggest concern is that recent home price gains appear to be the product of rising investment sales and practices such as ‘flipping’ (buying and selling a home within a short time). All-cash sales have risen dramatically since last year and are now at nearly 50%. ‘Cash sales are often indicative of investor behavior so the concern is that home price increases are being driven more through speculative buying than from increasing demand,’ said Hilts.
Broadly speaking, home price growth is pushing through despite rising interest rates, which is starting to affect the affordability of new mortgages. Since May, rates have risen to 4.3%, though the effects of this increase which have not yet manifested in the latest available home price data. Fitch expects interest rates to continue rising through next year, which will strain affordability if home prices remain elevated and are still growing.
Fitch’s ‘U.S. RMBS Sustainable Home Price and Economic Risk Factor Report – November 2013’ is available at ‘www.fitchratings.com’ or by clicking on the above link.
Joseph Colangelo is Executive Director of Consumers' Research, the nation's oldest consumer-focused organization. Joseph grew up in Northern New Jersey and attended U.C. Berkeley on a Naval ROTC scholarship where he graduated with a Bachelor’s of Arts with a concentration in Political Science.