Housing bubble 2.0? Not likely this time, new study says

Southern California remains home to the most overpriced housing markets in the country, but any fears of a new bubble look increasingly unfounded.

That’s according to a new report out Tuesday from real estate website Trulia, which monitors bubble conditions by tracking home prices relative to household incomes and long-term norms in markets nationwide.

After surging last year, prices here have cooled off this spring, giving the job market time to catch up. While Trulia says three of the four most “overvalued” housing markets in the nation are in Southern California — Orange County, Los Angeles County and the Inland Empire — those markets are far less overvalued than they were in the mid-2000s, when risky lending pushed prices far beyond what household incomes would bear. This time, price gains are slowing down as would-be buyers pull back and lending standards remain high.

“We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not. Furthermore, the market is neither overbuilding nor overlending,” Kolko wrote. “On all these measures, the housing market today looks little like the bubble last decade.”

Still, if there’s a place where home prices are out of whack with incomes, the Southland is it. Prices in Orange County were 17% overvalued in the second quarter, by Kolko’s estimate. In Los Angeles they were 15% overvalued and in the Inland Empire, 13%. That’s compared with 71%, 79% and 92%, respectively, for those markets at the peak of the housing bubble in early 2006.

Nationwide, Trulia said, homes are undervalued by 3%, though Kolko expects prices will return to long-term averages by the end of this year or early 2015.

Keep an eye on housing and real estate in Southern California. Follow me at @bytimlogan