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Podcast Episode #280
Real Estate Investing News

Bubbly or Underwater? Which U.S. Markets Have an UpSide or DownSlide

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Learn > Real Estate News > [REN #280] Bubbly or Underwater? Which U.S. Markets Have an UpSide or DownSlide

Published: June 8th, 2017

It’s been ten years since the housing euphoria of 2007 dropped into the depths of a recession, and wiped out trillions of dollar in home equity. The economy has been slowly recovering since then, and the latest report from Zillow says the national median home value has finally returned to pre-recession levels. But does that mean we are at risk of another housing bubble?

Back in April of 2007, the national median home value was $196,600. Zillow reports that over the last year, its Home Value Index rose 7.3% and hit $198,000 in April of this year, surpassing the 2007 level by 1%.

It says the cities that saw the most growth in home value were Seattle, Dallas, Tampa, Detroit, and Orlando. Since April of last year, home values rose 9.9% in those cities. The cities with the smallest gains in home values were Houston, Washington, D.C., Baltimore, and San Jose, California. They all posted less than a 4% gain in home values. Zillow says that none of the 35 metros represented in the report experienced a drop in values.

Looking at the nation as a whole only tells part of the story because not all regions have recovered. While some regions may look like they are entering bubble territory, others are still catching up.


Las Vegas Lagging the Most

The metro area that remains farthest behind is Las Vegas, although prices seem to be on a tear upwards right now. Zillow say they have increased at a faster pace than the national median, and are up 9.7% from a year ago. Right now, the Las Vegas median is $220,700. That’s higher than the national number, but it’s still well below the city’s pre-recession peak of $306,700.

Las Vegas got hit hard by the recession. There had been a rapid run-up in home prices and the city was in the midst of a development boom when the crisis hit. It took the air out of that balloon quickly, and home values plummeted. Zillow says that at one point, more than 70 percent of mortgages in the Las Vegas area were underwater.

The situation was so bad, that many people filed for bankruptcy and left their homes for repossession by banks. Zillow says banks didn’t necessarily do that however, and many homes remained empty and available for squatters. Zillow says some people posed as landlords and rented empty homes. Las Vegas has had a lot of ground to cover in its recovery. By the end of last year, Zillow says negative equity was just 16.6%.

Zillow says there are several metros that are still in the home value recovery phase. Orlando is one of them. It’s still off about 20% from its 2007 level. Miami is about 18% off its peak. Phoenix still has another 15% to go. And St. Louis needs another 6%.


Denver Outpacing the Rest

While those cities struggle, other cities have already zoomed past any previous home value milestone. Denver returned to its pre-recession peak of $235,900 four years ago. The city’s median home value is now $366,000. That’s more than 50% higher than it was before the crisis. It’s also a tribute to population growth and tight inventory. Zillow says that kind of growth can indicate the beginnings of a new bubble. But it says in Denver’s case, it’s not likely because the rapid home price growth is also offset by strong job growth, wage growth, and demand.

Zillow drew a home value graph for Denver that dips slightly during the downturn. That’s in sharp contrast to the Las Vegas graph that looks more like a roller coaster. And then when you see one for Pittsburgh, Pennsylvania, it’s truly a thing of beauty.


Pittsburgh Slow & Steady

Zillow’s chart is one simple line that runs from about 2001 through 2017, and for Pittsburgh, it’s almost a smooth climb up through every single year. The only “blips” you see are a few years where prices were flat, in 2008 and 2013.

As Zillow puts it, Pittsburgh was spared the “boom-and-bust cycle” that many other parts of the country suffered. Instead, “Steel City” has experienced a steady increase in home value throughout the last two decades.

And here’s where the Pittsburgh story goes from a thing of beauty to a great opportunity for investors. The median home value in Pittsburgh is just $136,300.


Boston Represents U.S. Overall

The city that represents a smaller version of the overall U.S. housing crisis experience is Boston. Zillow says it hit its $382,700 peak in November 2005, which was a little sooner than other metros. Home values then fell for about six years, and slowly climbed back up to the pre-recession level exactly 10 years later, in November, 2015.

Zillow says that of the 32 largest metro areas, 10 surpassed their bubble peaks more than a year ago. Another 17 are still in recovery mode. So the question of a bubble is best looked at in terms of metro areas, along with other considerations. Yes, some markets are overpriced right now but according to Zillow Chief Economist Dr. Svenja Gudell, “We are not in a bubble, and won’t be entering one anytime soon.” She says: “There are big differences between the market then and the market now.”

Gudell says the market was on a much shakier foundation back then with loose credit, lots of market speculation, and overbuilding. She calls it a recipe for disaster. Now, she says: “Supply has been slow to catch up to demand, which is causing home values to grow at a faster clip than we might otherwise expect. Beyond that, the market’s fundamentals look largely healthy.”

Here’s a link to Zillow’s report that lists the 32 largest metros along with home value data for each one:


Kathy Fettke

Kathy Fettke

Kathy Fettke is the Co-Founder and Co-CEO of Real Wealth Network. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch.

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