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Trulia: Don't fear bubble, home prices undervalued

Posted on Wednesday, October 1, 2014 at 9:52:11 AM

One main characteristic of this past housing bubble was high home prices - much higher, in fact, than what should be seen in the real estate sector. 

While recent trends have shown that prices are on the way up, there doesn't appear to be anything to fear. According to Black Knight Financial Services, U.S. home prices ticked up 5.1 percent from July 2013 to July 2014. That increase is smaller on a monthly basis, however, only at 0.2 percent. 

Even with the surge, Trulia's chief economist Jed Kolko said he believes that we have much greater concerns other than a housing bubble. Research from Trulia showed that U.S. home prices are actually 3 percent undervalued in the third quarter of 2014. For comparison, prices were 34 percent overvalued at the start of 2006 during the past bubble. Then, prices plummeted to 13 percent below value by 2012.

There are a few markets that have bubble-like price gains, but nothing too severe. Kolko pointed to Austin, Texas, which is 19 percent overvalued, as well as Los Angeles and Orange County, California, both tied at 15 percent.

Overall, homebuyers interested in residential financing and a good deal shouldn't be afraid of a pending housing bubble.