With the most unaffordable housing market in the nation, it'll come as no surprise to learn that Los Angeles home prices are way too high.

That's the conclusion of a new “Bubble Watch” analysis from real estate website Trulia. L.A. made the top three in major American markets “where home prices are most overvalued,” the site said this week.

Why do owners ask so much for their property? Because they can. An improving economy and bullish real estate investment trusts have created a mad sellers' market. And Trulia suggests there could be a danger here.

The site looked at listing values “relative to fundamentals” such as “historical prices, incomes, and rents.” “The more prices are overvalued, the greater the chance that a bubble might be forming,” the site says.

Bubbles, like the one led to the Great Recession, tend to burst.

California continues to lead the nation in astronomic housing prices.

“Eight of the ten most overvalued markets are in California and Texas, led by Austin, Orange County, and Los Angeles,” Trulia says. It looked at values for the last quarter of 2014.

Orange County, which is sometimes paired with L.A. in other comparisons, was the nation's second most overvalued market, with prices 15 percent higher than the “fundamentals,” according to the site.

Number one Austin 16 has home prices that are 16 percent higher than they should be.

San Francisco, San Jose and Oakland all made the top-10 list of the most-overvalued American metro areas for housing.

Credit: Trulia

Credit: Trulia

L.A. prices are 13 percent above the fundamental level, according to Trulia. In the first quarter of 2006, before the subprime-loan scandal brought down the U.S. economy, local housing prices were 73 percent above the fundamental level.

Now that's a bubble.

While overvalued housing can lead to a bubble, Trulia chief economist Jed Kolko says today's mellowing prices in L.A. and other markets are a good sign:

Price gains are slowing down without having gotten back into bubble territory. Even the most overvalued markets today are a far cry from last decade’s bubble, when nearly half of large metros were more than 30% overvalued.

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