America’s Most Overvalued & Undervalued Real Estate Markets

Where are America’s most overvalued, and undervalued real estate markets today, and where should investors be investing?

According to Trulia’s most recent Bubble Watch report, the overwhelming percentage of U.S. markets are still undervalued. A few are reportedly pushing above what Trulia deems where they should be. So where are the most overpriced and bargain markets for investors?

Trulia’s Housing Market Report Q3 2014

Trulia’s third quarter Bubble Watch reports that the vast majority of American metropolitan housing markets are still undervalued. However, considering that the data compiler is using a level point from mid-2008, which is around 40% less than home prices were at in the 2005 peak, American property is likely far more undervalued than Trulia reports. It is important to point out that, according to historical data, home prices should rise far above the previous peak during this upward cycle.

There are also new values being placed on U.S. real estate, with even large swathes of housing becoming a separate asset class. Now that homeownership has dropped so low, many investors are investing based upon income valuations, which could potentially be even far higher than those based upon other metrics.

The Top 10 Most Overvalued Metros:

  1. Austin, Texas
  2. Los Angeles, California
  3. Orange County, California
  4. San Francisco, California
  5. Riverside-San Bernardino, California
  6. Honolulu, Hawaii
  7. San Jose, California
  8. Houston, Texas
  9. Denver, Colorado
  10. Oakland, California

Trulia poses that Houston and Austin are actually more overvalued now than they were back in 2006. Measured against 2006 fundamentals, Trulia reports Riverside area home prices are almost 90% overvalued. For those looking to invest in California, it appears heading down to San Diego may now offer both the most value, and potential for price growth.

The Top 10 Most Undervalued Metros:

  1. Dayton, Ohio
  2. Cleveland, Ohio
  3. Detroit, Michigan
  4. Akron, Ohio
  5. Lake County, Illinois
  6. Toledo, Ohio
  7. New Haven, Connecticut
  8. Camden, New Jersey
  9. Worcester, Massachusetts
  10. Fairfield, Connecticut

Leading with Dayton, which was reportedly undervalued by 21% as of Q3 2014, there are clearly still significant bargains to be found on U.S. homes. Of course, when looking at markets such as the deeply distressed Detroit, investors are wise to consider whether they need to temper bullish optimism with real fundamentals. Even elsewhere there may be obsolete real estate which is just too costly to pull down or rebuild.

On the other hand, there are certain markets which appear they have at least another 100 years in them, before experiencing any dramatic long term slump. Even NY, which was feared to have lost its position claims to again be drawing tens of billions in international investment.

Finding the Right Investment Market

Selecting the best real estate market to invest in goes beyond looking at data like this. It is far more a personal decision and depends on individual goals, strategy, and timelines. For example; does it matter if you invest close to home or just in the most profitable markets? Are you using a real estate investment strategy like wholesaling houses that can be applied no matter what phase the market is in, or do you need to find cosmetically distressed homes, and markets with rising rents to support fixing and flipping or long term hold plans?

There are really deals to be found everywhere, even though some may require more effort to find appealing inventory and discounts than others. Many real estate investors may even find it wisest to invest in a diverse mix of these markets and sell off and replace or re-weight portfolios as the market develops. However, one thing is crystal clear, and that is the time to invest in real estate and expand acquisition activity as much as possible is now. Every quarter that goes by means missing out on additional spreads and profits on the same homes. There is plenty of capital out there to fuel growth. So why wait?