Updated from Dec. 14.

The housing market is healthy heading into 2016, and the Federal Reserve interest rate hike is not strong enough to sink it, said David Berson, chief economist at Nationwide.

Although down modestly from its peak, the national Leading Index of Healthy Housing Markets remains at a level well over the break-even of 100, according to Nationwide. This level suggests that the U.S. housing market is healthy, with little chance of a housing downturn in the next year. Nevertheless, rapid house price appreciation is reducing affordability and is a risk to housing sustainability.

"There are parts of the country -- certainly, California, New York, Washington, D.C., and other markets such as Dallas and Denver -- where house prices have moved up very high and we have some concerns about those markets," said Berson.

Regionally, the LIHHM performance rankings show that the housing markets in the vast majority of metropolitan statistical areas and divisions are in good shape. Berson said this suggests that most local housing markets should see sustainable expansion in the near term.

That said, lower energy prices continue to weaken the outlook for regional housing markets with strong ties to the energy sector. The bottom 10 metropolitan statistical areas by LIHHM ranking are almost entirely from Texas, Louisiana, Wyoming, and South Dakota, according to Nationwide.

"We've already seen some fairly significant declines in those areas. They are healthy in other regards, but if job growth continues to moderate in those areas we will have some problems in those markets," said Berson.

Other Rising Rates Stories

Labor market conditions, a key driver of housing demand, are strong in many metropolitan statistical areas. That is supporting faster household formations and boosting local housing activity through rising incomes, according to Nationwide. Berson added that older Millennials are starting to form households because they are tired of renting or living with their parents.

As to whether the Federal Reserve rate hike will undo the housing market gains, Berson said that outcome is a long way away at this juncture.

"We would need to see a fairly significant increase in interest rates for the housing market to be negatively affected and that's not going to happen next year," said Berson.