Texas Housing Markets ‘Overvalued,’ but It’s Still Not a Bubble

Texas avoided the housing bubble-and-bust cycle of the 2000s. But could it be heading into one now? A recent report showed that several real estate markets in Texas are now overvalued.

This week CoreLogic, a financial and real estate analytics company, released a report that showed 14 overvalued real estate markets across the U.S. That’s twice the number of overvalued markets identified during the first quarter of this year.

Texas cities were well represented on the list. According to CoreLogic, the housing markets in Austin, Dallas, Houston and Forth Worth are all overvalued.

The List: 14 Overvalued Real Estate Markets in 2015

To create its list of the most overvalued real estate markets in America, CoreLogic analyzed housing data through the first half of 2015. Their definition of an “overvalued” market is an area where local home prices are 10% or more higher than the “long-term sustainable level.” Essentially, they’ve compared home affordability to per-capita income, within each local market analyzed.

The list below shows the percentage of home value relative to the long-run sustainable metric mentioned above. The higher the percentage, the more overvalued the housing market — by CoreLogic’s estimation, anyway. As you can see, Texas leads the way in terms of the most overvalued metro area (Austin) and the highest number of markets on the list (5).

  1. Austin-Round Rock, Texas 42.3%
  2. Houston-The Woodlands-Sugarland, Texas 25.4%
  3. Charleston-North Charleston, S.C. 23.4%
  4. Miami-Miami Beach-Kendall, Fla. 20.6%
  5. Washington-Arlington-Alexandria, DC-Va.-Md.-W.Va. 19.2%
  6. Knoxville, TN 14.4%
  7. Philadelphia, PA 14.2%
  8. Dallas-Plano-Irving 14.0%
  9. San Antonio-New Braunfels, TX 12.4%
  10. Nashville-Davidson-Murfreesboro-Franklin, TN 12.3%
  11. Cape Coral-Fort Myers, FL 11.1%
  12. Fort Worth-Arlington, TX 10.2%
  13. Silver Spring-Frederick-Rockville, MD 10.1%
  14. Denver-Aurora-Lakewood, CO 10.0%

The Texas housing markets are shown in green for the sake of readability.

Opinion: Texas Is Not in a Housing Bubble

All of this begs the question: Is the Texas real estate market currently in a bubble, or is it moving in that direction?

Freddie Mac’s chief economist recently issued a housing update that discussed the difficulty in identifying overvalued real estate markets. According to that report:

“There is no single statistic that reliably identifies when a housing market is overvalued or when house prices are likely to fall. Sadly, the only reliable method for identifying these situations is in retrospect. The best minds and most sophisticated statistical techniques all have fallen short of the mark.”

This would put them at odds with the simplified method CoreLogic used to identify overvalued real estate markets. But even if we could agree, for a moment, that house values in Texas are a tad high in relation to per-capita income, that doesn’t necessarily spell doom.

Sam Khaterj, CoreLogic’s own deputy chief economist, was quick to point this out:

“Just because you’re overvalued doesn’t mean that you’re in a bubble or there is an impending crash,” Khaterj said. “Some markets are overvalued because of strong fundamentals,” said Sam Khater, CoreLogic’s deputy chief economist.”

We must also consider that Texas currently has one of the most robust economies of any state in the nation. The unemployment rate in Austin, for example, is currently hovering in the mid 3% range. By comparison, the national jobless rate is still above 5%. It’s hard to imagine some kind of price crash in a state with such economic stability.

So, is the Texas real estate market in a housing bubble, where home prices are concerned? I would offer a resounding “no.” Overvalued, perhaps. But not a bubble.