Houston (and Most of Texas) Home Prices Are Overvalued, Report Says

That fantastically-inflated Houston housing bubble may be deflating a bit, says the Fitch Ratings' Sustainable Home Price fourth-quarter report.

Houston has one of the most overvalued housing markets in the country, according to the report, with some home prices in the Bayou City are overvalued by as much as 19 percent.

That news probably comes as little surprise to the folks who've been living in the midst of Houston's skyrocketing real estate prices for the last few years, but what is surprising is that Houston housing market now trails only slightly behind Austin, which Fitch says is the most overvalued market in the nation.

To determine the markets with overvalued home prices, researchers with Fitch looked at factors like home value growth past the historical norm, household income, unemployment rates, population growth, and -- of course -- mortgage and rental rates.

In Houston, Fitch says part of the problem is the free-falling price of oil -- prices dropped from $100 a barrel to less than $60 recently -- which is likely to affect Houston's economy. With falling oil prices come job losses in the energy sector, which will lead to more hesitant buyers. That, in turn, will slow down sales and slow the growth of housing prices in Houston, says Fitch.

But it's not just Houston that has too high of a real estate price tag, says Fitch. The ratings firm says that the Lone Star State has "vaulted past California and now has the housing markets deemed most overvalued."

Texas as a whole is about 11 percent over value, and the financial firm warns that the rest of the state may also feel the impact of falling oil prices.

"After largely skirting the excesses and downsides of the last housing boom, significant recent growth has made Fitch cautious on the Texas housing market," says the group's report. "Fundamentals do not appear supportive of current prices and the economy is vulnerable to the energy sector."

So while it's kind of a headache to think that we may be looking at a housing bust in the near future, at least it's statewide and not just Houston-centric, right? (We'll take solace where we can get it on this one.)

But not everyone agrees with the Fitch housing data. Economist Jim Gaines, of the Real Estate Center at Texas A&M University, told the Austin-American Statesman he's looked at Fitch's new Texas housing report and doesn't agree with the conclusions.

"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."

Let's hope he's right. Here are the cities with the most overvalued real estate in the country at the moment, according to Fitch:

Austin: 20 percent overvalued Houston: 19 percent Riverside, California: 18 percent San Antonio: 16 percent Phoenix: 16 percent Miami: 13 percent Santa Ana, California: 13 percent San Francisco: 13 percent Los Angeles: 12 percent Fort Lauderdale, Florida: 11 percent

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