All Forum Posts by: Stefan Tsvetkov

@John Morgan Housing shortage (what you call supply and demand), indeed reduces the 'overvaluation', typically shifts affordability upward to a new steady state level. It: 1) needs to be verified with Census county-level data for housing units and population; 2) Precise impact on valuations/effect on prices to be computed.

At the state level (haven't looked at county level myself), I see Texas as overvalued on top of its housing shortage. And yes, the state level data does show some housing shortage for Texas.

Overall, precarious there if a peak happens, until there gonna be momentum of course.

@Shiloh Lundahl Yup, all for market inefficiency at time 0 :)  not gambling etc. It is just one component of 'total return' though. Overall Arizona an overvalued market right now, and in fact very few states are. So a bit precarious there, thus my post here. Casa Grande doesn't look so bad though. Not gonna matter until a peak happens, typically momentum until then.

@James Carlson Sure, can watch 38:00 and forward of my video lecture below. 

US Real Estate Valuations and Outlook Post 2020 Recession, Stefan Tsvetkov

It is a county-level, as well as state-level analysis. Been working on enhancements to incorporate housing shortage (population/housing supply ratios), though the above indirectly reflects that. 

Colorado among just 8 overvalued states right now (as of Q1 2020). Denver itself appears the least overvalued, but small geographies (counties/cities) are harder to predict at peak.

@Shiloh Lundahl Above is purely a price and income story, just data. Naturally, you have inside knowledge of the market you operate in. As for housing shortage i.e. population/housing supply ratios, that would have shifted valuations upwards, correct, towards a new "steady state" regime. 

Looking back at it, I see Casa Grande at +19% price performance vs. its "fair valuation" post 2007, less than say Phoenix at +63%. Price performance since 'bottom' would be of course higher.

Valuations are hard to "see", it is purely in the data, and yes there is a mild overvaluation (7% I mentioned) in that area, less than in Maricopa county. Housing shortage, if there as you describe intuitively (can verify with Census population and housing units data), would have made the place less overvalued, though the above 7% should reflect it due to using a trailing historical average in its denominator.

@Taronda Ransom Note sure if you made your move 2 years ago. As of first quarter of this year, Casa Grande (Pinal County) is 7% overvalued based on historical incomes, below the state over-valuation of 12%. 

2006-8 Peak-to-Current price performance is negative 15%, so the market has performed weakly in price terms. Overall incomes have grown slowly in Arizona, which has rendered nearly all markets there overvalued in spite of not so strong long term sustainable price performance.

Can PM me if any questions.

As for the Phoenix market, it is overvalued, yes, at 13% above historical price-income levels, as is the state of Arizona overall (12% overvalued). This is given income growth has not been strong in Arizona past 2006-2008 peak.

Can PM me for further info or data summaries.

@Wes Blackwell Price performance since 2006-2008 price peak is in my mind a proxy for long-term sustainable growth much more than a measure of 'valuation' i.e. whether the market is in a bubble.

As of Q1 2020, 45 out of 51 U.S. States and the District of Columbia, were past their 2006-2008 peak, exceeding the latter with 23% on average (this is based on FHFA data). States that did not exceed it were either high foreclosure states, or states that had significant issues with population/job outflows (CT, MD, NJ, IL, DE, RI)

That said just 8 of these states are overvalued >10% as based on historical price-income ratios (ID, DC, NV, CO, AZ, FL, TX, WA). In fact 30 states have negative valuation.

@George Genovezos Not speaking about cap rates here (such as the latter being compressed or not). Based on historical price-income ratios as of Q1 2020, the state of Texas is overvalued, yes, at 11% above historical levels. Fort Worth (Tarrant County) is further overvalued at 13% above historical levels. Dallas County looks better at +6% valuation. PM me for any data, further info.

I agree, one needs to define what "overpriced" means. Neither absolute prices, nor affordability (House price-to-Local income ratios) correlate well with post-peak market drops. I found % deviation from historical affordability to be most predictive vs. subsequent actual price drops post 2007 (83% correlation at the state level).

House affordability (i.e. house price-to-income ratios), varies widely across different U.S. states and counties. Affordability alone is not a measure as to whether a specific market is overvalued. Deviation from historical affordability on the other hand, at peak 2007 was highly correlated with subsequent market drops (in fact 83% correlated at the state level in a study I did)