Orange County Is Nation's Most 'Overvalued' Real Estate Market, Report Says

Orange County real estate is the most overvalued in the nation, according to the real estate website Trulia.com.

Trulia released its Bubble Watch report Wednesday showing Orange County at the top of a list eight metropolitan regions with overvalued homes, a term used to describe a market where prices soar beyond their fundamental value defined by supply, demand and future expectations about value. The company estimated Orange County prices were overvalued by 9 percent, which is still below 2006, when homes were priced 71 percent higher than their fundamental value, according to Trulia.

The company stopped short of calling the Orange County market a bubble.

"Although we’re far from bubble territory today, there’ll be another home-price bubble someday, somewhere," said Jed Kolko, Trulia’s Chief Economist. "The history of American real estate is full of speculation, bubbles, and busts. Even now, most people expect home prices to get back to the peak of the previous bubble again in the next 10 years. Prices may be far from bubble levels today, but we need to stay on guard for signs of the next bubble."

Trulia’s eight metro regions with overvalued homes also included Austin, San Antonia, Los Angeles, San Jose, San Francisco, Houston and Portland.

The median price of a home in Orange County increased by 19.9 percent in July, compared with the same month a year ago, while the number of homes sold rose by 42.6 percent,  Dataquick, a real estate information service, announced today.

Last month, 4,402 homes sold in Orange County compared to the 3,087 that sold in July of 2012.The median price was $539,500 last month, up from $450,000 in July 2012, according to DataQuick.

A total of 25,419 new and resale houses and condos changed hands in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month, according to DataQuick. That was a 17.6 percent jump from 21,608 in June and up 23.5 percent from 20,588  in July 2012.

The median price for a Southern California home was $385,000 in July -- the same as in June but up 25.8 percent from $306,000 in July 2012. According to DataQuick, the June and July median prices were the highest for any month since April 2008, when the median was also $385,000.

"July home sales came in very strong, and we think a lot of the increase in activity can be chalked up to a rising inventory of homes for sale," DataQuick President John Walsh said. "The jump in mortgage rates a couple of months back might have spurred more buying too. The market continues its re-balancing act, with more and more people who've been underwater now able to sell their homes at a profit, or at least break even."

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Is the Orange County housing market still in correction, or is it becoming inflated?