Fitch Warns Of Housing Bubble, Says "Unsustainable" Jump Leaves Home Prices 17% Overvalued

Whether it is 'cover' for the all-too-obvious collapse to come (when another round of ratings agency litigation will take place as blame is apportioned) or more likely a 'fool-me-once...' perspective on reality, Fitch has a new report blasting the "unsustainable" jump in home prices, adding that "the extreme rate of home price growth is a cause for caution." While they note, rising prices are a positive indicator for a recovery, Fitch adds that unprecedented home price growth should be paired with economic health that is similarly unprecedented, the evidence for which is lacking in this case.

Based on the historic relationship between home prices and a basket of econometric factors, Fitch considers estimates national prices to be approximately 17% overvalued in real terms (Bay Area home prices to be nearly 30% overvalued, which approximates the environment in 2003, three years into the formation of the previous home price bubble) - as "speculative buying, not increasing demand" is driving the market. Between this 'speculation' and interest rates, affordability is "strained."

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