Is California Real Estate Overvalued?

California is by no means a cheap place to live, but a recent report conducted by Trulia has revealed that Southern California is one of the most overvalued real estate markets in the country. Although home values remain at a safe level at the moment, it’s important to note these changes as an overvalued market could indicate another bubble.

According to Trulia’s second-quarter “Bubble Watch” report, Orange County and Los Angeles County are currently the most overvalued markets in the country. The two counties remain at 12% and 10% above where they should be priced respectively.
Although these rates are slightly higher than the average nationally – which is 5% undervalued – they still remain far below the pre-crisis levels which they once were at. At the height of the bubble, prices were 70% overvalued in Orange County, and 78% overvalued in Los Angeles County.

An overvalued market can lead to an assortment of problems, but many experts believe there is no reason for concern with prices at their current levels. Jed Kolko, Trulia’s chief economist, is one of the many who trust that these overvalued properties will not lead to another bubble, at least not yet. Kolko recently commented saying, “No worries about a bubble now — if prices kept rising at their current rate, in a couple years we would be back into bubble territory.”

It’s unlikely that this will become a problem though. With the recent increase in mortgage rates, the growing supply of houses on the market, and a loss in investor activity, it’s likely that these increasing prices will soon flatten out.

Have overvalued properties been affecting your business? Do you think the overvalued market will lead to another bubble? What are your thoughts?

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