WASHINGTON — The D.C. region is one of four metro areas real estate firm CoreLogic Inc. now considers “overvalued,” based on its analysis that includes disposable incomes and median prices.
Of the nation’s 10 largest metro areas, CoreLogic says Washington, along with Denver, Houston and Miami have tipped from “at value.”
What’s driving it?
The inventory of homes continues to be limited and that, combined with the rising demand to buy homes and incomes that aren’t keeping pace, are to blame.
CoreLogic reached this determination by comparing home prices to their long-run, sustainable levels, which are supported by market fundamentals like household income (because homeowners use most of their income to pay for home mortgages).
A market that is overvalued is one in which home prices are at least 10 percent higher than the long-term, sustainable level.
“The Washington area overall is a very high-cost market, and prices have risen much more over the last few years than incomes for regular families,” CoreLogic chief economist Frank Nothaft told WTOP.
“There are still some parts of the overall D.C. metro area that still are fairly valued, but they tend to be way at the outer rim of the metropolitan area. It’s really hard to find affordable housing either in D.C. or close,” Nothaft said.
He says it is a simple mathematical equation.
“Just over the last year in the Washington, D.C. area, home prices have risen an average of 5 percent over the last year, and mortgage rates are up a half percentage point over the last 12 months. That means to buy the same house with the same down payment today compared to 12 months ago, the homebuyer is looking at a monthly mortgage payment that is about 12 percent more than it was just a year ago,” Nothaft said.
Nationwide, home prices are up almost 50 percent since the trough in March 2011. CoreLogic says with no end to the escalation in sight, largely because of the lack of sufficient inventory on the market, affordability is rapidly deteriorating.
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