The housing of bubble of 2006 has long since popped, but some industry professional still argue a second is on the way. Where does our city stand?

Every quarter, Trulia updates its Bubble Watch, which monitors home prices, determining whether they are overvalued or undervalued relative to their fundamental value – a figure based on supply, demand and realtistic expectations about the future. As prices move past their fundamental epicenter, the market inches closer and closer to another bubble scenario.

In Houston, where the state has managed to stave off many of the more disastrous effects of the housing crisis, prices remain five percent overvalued relative to established fundamentals, but that number still represents a 13.7 percent increase year-over-year, which brought prices out of undervalued territory. During the first quarter of 2006, when the previous bubble was in full effect, prices soared, being estimated at 80 percent above fundamental levels.

Moving Forward as a Nation

While Trulia’s researchers and data scientists monitor individual metro areas and the trends affecting those areas specifically, they also monitor the nation as a whole. Trulia’s recent Bubble Watch showed:

• Overall home prices are currently three percent undervalued.
• Among the overvalued markets, Austin appears to be the only city more overvalued now at 13 percent than it was during the peak of the bubble years when it hovered around eight percent overvalued.
• Among the undervalued markets, Akron and Cleveland appear the only market cities where prices are undervalued by more than 20 percent. Additionally, home prices in the two cities are rising slower than the national average of eight percent.

We’re Not Out Yet, But We’re Close

No one is celebrating the fact that home prices are still undervalued, but the gains over the last year have, in many areas, been considerable, and several industry experts, including Trulia Chief Economist Jed Kolko, believe we are well on our way to a sustainably balanced market.

Kolko points out that despite more than three-quarters of the top 100 metros supporting undervalued prices, recent gains suggest the market is ebbing its way towards a healthy medium. He says that if price increases were accelerating, we might consider the possibility of a second housing bubble, but the fact remains that prices gains are actually slowing down.

“At this pace, home prices nationally should be in line with long-term fundamentals – i.e. neither overvalued nor undervalued ¬–¬ by the last quarter of 2014 or the first quarter of 205,” Kolko speculates.

Even in the markets most overvalued, such as Orange County and Los Angeles, prices still pale in comparison to their 2006 Q1 counterparts. Check out our graph below for more information!