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Home Value Forecast 12.19.2016
Is a “Bubble” Imminent in California’s Most Expensive Metros?

Over the past few months there have been a number of articles questioning whether California’s most expensive metros were once again entering “bubble” territory. In this month’s Home Value Forecast, we take a closer look at these communities to see if there is in fact any cause for concern.

Current Sale Price

For the third year straight, the same three California metros: San Francisco, San Rafael and San Jose, top the list of higher current sales price. In fact, California CBSAs accounted for nine of the top 10 spots in this category — with Honolulu, HI (number five) the only outlier.

With a $202,000 difference between number four on the list (Santa Cruz-Watsonville, CA – $768,000) and San Jose, it doesn’t look like the top three will be changing anytime soon.


A closer look at appreciation in these three metros also sheds some light on the situation. San Francisco’s home price appreciation in 2015 was 12.62%. In 2016 this slowed to 7.88%. San Rafael and San Jose had even more of a slowdown, with both going from 12% in 2015 to in the 2% range for 2016.

The Collateral Analytics Forecast reflects these slowing numbers in their forecast:


With these prices and year over year appreciation, people ask if there is a “bubble” on the horizon for any of these communities. Let’s look at affordability to help answer the question.


Affordability is derived by looking at the median income for a particular area as a ratio to the mortgage payment needed to purchase a median priced home. An index score above 100 signifies that a household earning the median income has more than enough income to afford the mortgage. Lower scores suggest more income is needed to cover mortgage expenses. The Collateral Analytics Affordability Index used by Home Value Forecast also looks at loan-to-value norms for a particular area to adjust for more affluent buyers usually putting more money down. Below are the affordability indexes for San Francisco, San Rafael and San Jose.


As can be seen with the affordability index, salary increases have kept affordability closer to historic norms, not “bubble” territory of 2005-2007. This was also a time when the mortgage industry was filled with zero-down loans, sub-prime loans, balloon payments and variable rates – all loans that relied on home appreciation to be solvent.

Tight credit policy and low interest rates post-crash mean that the majority of loans that have been written since 2008 are now of high quality and less likely to default. For these reasons, we do not believe that a “bubble” is imminent.

Interest rates are expected to rise in 2017, likely slowing appreciation further. We will keep an eye out.

CBSA Winners and Losers 

Each month, Home Value Forecast uses a number of leading real estate market-based indicators to rank the single-family home markets in the top 200 CBSAs and highlight the strongest and weakest metros.

The ranking system is purely objective and is based on directional trends. Each indicator is given a score based on whether the trend is positive, negative or neutral for that series. For example, a declining trend in active listings would be positive, as will be an increasing trend in average price. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators. From the universe of the top 200 CBSAs, each month we highlight the CBSAs which have the highest and lowest composite scores.

The tables below show the individual market indicators that are being used to rank the CBSAs, along with the most recent values and the percent changes. We have color-coded each of the indicators to help visualize whether it is moving in a positive (green) or negative (red) direction.

Top 10 CBSAs


Our top ten this month is led by Washington State with five metros represented. In all ten the story is the lack of inventory — with active listings down anywhere from 9% to 61%.

MRI indicates how “hot” a market is at a particular time. MRI equals the amount of households on the market divided by the number that sell per month. If an area has a high MRI (let’s say 10 months), it means that the market is saturated — a buyer’s market. If MRI is low (below 3 months) then it becomes a seller’s market. A “balanced” market will have approximately six months of inventory at any given time.

All the metros in our top ten have under 3 months MRI.

Bottom 10 CBSAs


Our bottom CBSAs feature a sampling from around the country, three from energy producing areas of Texas and two from Florida metros.

OPEC and non-OPEC oil producing countries have stated that they are going to cut oil production, which should help U.S. producers.  Twenty-one U.S. oil rigs were added the first week of December, bringing the total to ~500 — a far cry from the 1,600 in 2014. As more come back on line we should see these Texas communities clear up.

About Home Value Forecast

Home Value Forecast (HVF) is brought to you by Pro Teck Valuation Services. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs.

HVF is built using numerous housing and economic data sources. The top 750 CBSAs as well as data down to the ZIP code level for approximately 18,000 ZIPs are available with a corporate subscription to the service.

Also, Pro Teck Valuation Services offers reporters the following:

  • National, regional or metro level housing data
  • Monthly updates and HVF insights articles
  • By-request data for your story — custom data, heat maps and charts are available
  • Expert commentary from Home Value Forecast Editorial Committee:
    • Tom O’Grady, Chief Executive Officer, Pro Teck Valuation Services
    • Michael Sklarz, PH.D., President, Collateral Analytics
    • Jeff Dickstein, Chief Compliance Officer, Pro Teck Valuation Services
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