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Several Markets Experiencing Strong Price Growth, High Unemployment

For several markets across the country, strong home price growth is also attached a double-digit unemployment rate, leading ""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp to view the strong price appreciation as unsustainable.

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In a recent report, Fitch highlighted seven metro areas where high unemployment rates were in the backdrop of annual double-digit home price gains.

The top two were Detroit and Las Vegas, while the remaining five were in California: Sacramento, Stockton, Los Angeles, Bakersfield, and Riverside.

As of the fourth quarter of 2012, Detroit has seen prices skyrocket by 17 percent year-over-year, but the unemployment rate is at 11.2 percent compared to the national rate of ""7.6 percent"":http://dsnews.comarticles/payrolls-up-195k-unemployment-rate-flat-in-june-2013-07-05as of June.

Las Vegas and Sacramento both posted annual gains of 13 percent, but their unemployment rates are each at 10 percent, according to the report.

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Stockton had an unemployment rate of 14.4 percent, yet home prices surged 11 percent over the last year.

""Housing markets in Detroit and Las Vegas experienced huge drops in prices during the crisis, so the abrupt rise is worth keeping an eye on given the still-languid state of their respective economies,"" said Stefan Hilts, director at Fitch.

On a broader level, Fitch concluded national home prices, which rose 6 percent in 2012, are overvalued by about 12 percent.

However, the rating agency expects the difference to narrow over time.

""As markets stabilize and improvement in localized economies is more pronounced, the gap between actual and sustainable home prices should narrow,"" explained Hilts.

According to Fitch, ""several unique aspects"" of the market have pushed prices up.
For one, housing supply has remained limited due to extended foreclosure timelines as a result of legislation that has slowed the pace of foreclosures sales, as well underwater borrowers who are reluctant to sell, the report explained.

Overall, the combination of limited supply and demand from purchase borrowers and investors is causing the rapid gain in prices.

""It remains to be seen if these trends can continue as residential housing markets stabilize, with a higher volume of listed properties and sales. Nonetheless, the current growth is a positive sign of the housing market recovery,"" the report stated.

About Author: Esther Cho

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