Let’s just say that my eyes widened a little without the help of coffee when I read this story from Steve Brown. According to Fitch Ratings, Texas home prices are way overvalued, by 11 percent they say, and there could be a reckoning coming thanks to falling oil prices.
The financial analysts at Fitch are concerned about the year-over-year growth in Houston, Austin, and Dallas, which posted home price increases of 20 percent since 2011.
“The economies in Texas are strong with economic growth outpacing that of national improvement, but these high home price levels may be unsustainable,” said Director Stefan Hilts in a news release.
One concern is the recent drop in oil prices, long a primary economic driver of the Texas economy. A strong energy sector has propelled recent economic strength. However, a five-year rebound in oil prices has collapsed of late. Falling by more than a 40%, prices are now in the mid-50s as of this week. That said, ‘Texas has an economic resiliency beyond energy that will help offset any significant downward movement in home prices for these markets over the next year,’ said Hilts.
For the local perspective, Brown called up Dr. Jim Gaines, a research economist at the Real Estate Center at Texas A&M University:
“I’m not buying the overvalued card right now,” Gaines said. “Yes, prices have increased substantially for Texas markets – but only after being essentially flat for almost five years.
“Texas and the specific markets named, have experienced way above average growth in employment, incomes, and overall prosperity and it’s reflected in home values increasing,” he said.
Now, when we talk about “overvalued,” let’s not confuse actual value with relative value. We’re talking about a home’s price relative to its actual worth, not the value of a home compared to a similar property in a market such as San Francisco or Los Angeles.
What do you think?