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The figure above shows national homernprices and the population weighted averages between home prices and theirrnlong-run sustainable levels in the 50 largest markets.  The figure clearly shows the run up in thernbubble as prices between January 2005 and November 2007 rose more than 10rnpercent above sustainable levels; closer to 20 percent at the absoluternpeak.  Then prices collapsed, fallingrnquickly to levels of less than 10 percent below sustainable levels, nearing -15rnpercent in mid-2012.    rn</p

Since then, as house pricesrncontinued to rise, the gap narrowed to 6 percent below the long-run sustainablernlevel by August 2014, and is forecast to shrink further to just 3 percent byrnthe end of 2016.  Any bubble on thernnational front is clearly a ways away.</p

However there are CBSAs that are alreadyrnin bubble territory.  Table 1 shows thernfour overvalued markets of the top 50 CBSAs. In Austin and Houston the energyrnboom has fuel job and population growth and pushed home prices well abovernsustainable levels, in fact well above the peaks they established before the recession.  Austin is 22.8 percent above its peak andrnHouston 16.2 percent.  The other two mostrnovervalued metros are Miami, Fla. and Washington, D.C. As home prices havernrisen significantly since 2013, homes have become less affordable in these twornmarkets, and therefore, prices are less sustainable.  Both however remain below their previousrnpeaks.</p

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At the other end of the spectrum,rnPittsburgh is the most undervalued metro. rnThe city escaped the worse of the housing downturn and now, although itsrnhome price level is about 14.7 percent more than the peak level prior to thernrecovery, the disposal income per capita in Pittsburgh has risen even faster atrn21.1 percent.  These leaves Pittsburghrnwith a 25 percent gap relative to the sustainable home price level.  In the other three cities featured in Table 2 homernprices remain significantly below their historical peak levels, in spite ofrnstrong recovery in housing markets and rapid increases in disposal income.</p

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The bottom line, Liu says, is thatrnthe CoreLogic Market Condition Indicators show there is no bubble yet.  Despite the significant growth in home pricesrnsince they hit bottom a little more than two years ago most markets are stillrnwell within their sustainable levels and most are still only recovering fromrnthe market collapse.  

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