Home prices continued to rise in many markets for Q3 2017 Housing Market Indicators, reflecting rising buyer demand and a low for-sale inventory. Most markets are still healthy or have relatively low risk, according to the CoreLogic Market Health Indicator. However, 16 of the top 100 metro markets – ten in Florida alone – have been identified as high-risk markets and are a key part of the Q3 2017 Housing Market Indicators.
Q3 2017 Housing Market Indicators Market Health
The CoreLogic Market Health Indicator evaluates whether individual markets have high, normal or low risk by analyzing several economic factors for Q3 2017 Housing Market Indicators. First, it compares home prices using the CoreLogic Home Price Index (HPI) against the long-run sustainable levels that can be supported by local market fundamentals, such as disposable income. Because most homeowners budget a portion of their income for shelter costs, and these costs are generally related to home prices, there is an established long-term relationship between income levels and home prices. Second, the CoreLogic analysis looks at the appreciation of home prices relative to rents. Renting is an obvious alternative to home ownership, and over the long run, market forces should equalize the cost and benefits of home ownership and renting. If home prices deviate too far from rents, then it is due for a correction sooner or later. In addition to these fundamental drivers that justify the level of home prices, the analysis also accounts for speculative belief measured by the CoreLogic Flipping Index and CoreLogic Fraud Index. If the Flipping Index is too high, then investors are speculating on short-term home price gains, and vacancy rates may be elevated. Further, housing bubbles are often accompanied by widespread mortgage fraud.
High Risk Q3 2017 Housing Market Indicators
The 16 highest-risk markets of the top 100 metro areas analyzed, ten of which are located in Florida with the other six in California, Louisiana, Nevada and Texas1. Home prices have appreciated more than 40 percent since January 2012 in these metro areas with the exception of Nassau County-Suffolk County, NY and New Orleans-Metairie, LA. Meanwhile, rent appreciated less than half of the home price growth2. All 16 markets are overvalued on the basis of both price-to-income measures and price-to-rent measures. The national ranking for flipping and fraud risk in these metro areas. As one of the Q3 2017 Housing Market Indicators, most of them have flipping and fraud ranked in the top quantile, indicating short-term speculation as well as a high risk of mortgage fraud, which might lead to another bubble in those areas.
The number of high-risk markets for Q3 2017 Housing Market Indicators has increased by six from Q2 to Q3 in 2017. Besides the high price appreciation across many metro areas, flipping activities and fraud activities continue to pick up, signaling more short-term speculation and mortgage fraud, which should be closely monitored.
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