The most over and undervalued housing markets in America

 Jed Kolko, chief economist at Trulia, argues that U.S. home prices are 3 percent undervalued compared with their long-term fundamentals.

To gauge whether home prices are over- or undervalued, Kolko considers “the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends using multiple data sources.”

But housing is as much a regional story as it is a national one — and regional markets are markedly different.

The most overvalued housing markets are largely located in California, but again, Kolko doesn’t think these are in bubble territory.

“Orange County, today’s frothiest market, is just 17 percent overvalued now versus being 71 percent overvalued in 2006 Q1,” he writes. “Among the most overvalued markets today, only Austin looks more overvalued now (13 percent) than in 2006 Q1 (8 percent) – and that’s because Austin (and Texas generally) avoided the worst of last decade’s bubble and bust.”

Meanwhile, home prices are the most undervalued in Ohio. “But in several of the most undervalued markets, including Detroit and Chicago, prices are now rising year-over-year in the double digits,” writes Kolko. “But those markets are unlikely to stay on the most-undervalued list for many more quarters.”