Some Markets Remain Stubbornly Overvalued
WALTHAM, Mass. — Global Insight, the world’s leading company for economic and financial analysis and forecasting, released the 2007 second-quarter update of House Prices in America, the U.S. housing-valuation analysis, which shows the incidence of overvaluation in the nation’s housing market continues to decline, the result of falling home prices. Nationally, home prices are up year-over-year just 2.6 percent, the weakest gain since 1995.
Price declines were broadly dispersed throughout the country, though California, Nevada, Florida, New England, New York-all areas that had posted the highest levels of overvaluation-and the industrial Midwest-notable for sluggish economies and high foreclosure rates-showed widespread price declines.
Michigan hosts several metro areas, including Detroit, that now qualify as fully fledged corrections; five metros in California have seen double-digit corrections.
In all, 80 of the 330 metro areas in the analysis experienced price declines from the first quarter. Those 80 metro areas account for 22 percent of the nation’s single-family housing units. On a year-over-year basis, 93 metro areas had lower prices in the second quarter. More than half of them were in California, Florida, and Michigan.
Price declines have been most sharply felt in those metro areas that have been among the most overvalued. Indeed, 66 metro areas had lower home prices this spring than at the end of 2005.
The largest corrections occurred in California metros, led by Santa Barbara, down 12.6 percent. In the first six months of 2007, Merced, CA has seen the sharpest decline (-6.4 percent) followed by declines through much of Florida: Punta Gorda (-6.2 percent), Vero Beach (-5.9 percent), Port St. Lucie (-5.4 percent), and Sarasota (-5.2 percent).
As a result of price declines or stagnation, the overall number of single- family housing units deemed to be overvalued fell from 16 percent in the first quarter to 14 percent.
Meanwhile, in terms of single-family asset value, the percent deemed to be overvalued fell to 25 percent from 28 percent (revised) in the prior quarter. At their peak one year ago, extremely overvalued metro areas were 22 percent of all single-family units and 44 percent of all related real estate asset value.
Markets identified in the study as overvalued decreased to 51 metro areas in the first quarter, down from 59 metro area markets (revised) in fourth- quarter 2006. A year ago, 79 markets were overvalued.
The analysis shows that extreme overvaluation remains largely a coastal phenomenon-every state on the West Coast, as well as Nevada, Utah, Arizona, and New Mexico; Florida and the Washington, D.C. to Boston corridor on the East Coast.
The most overvalued markets are Madera (70.9 percent) and Merced (69.4 percent), CA; the most undervalued markets continued to be Dallas (25.0 percent) and Houston (24.4 percent).
James Diffley, Group Managing Director of Global Insight’s Regional Services Group, said, “The current housing recession, turmoil in financial markets, tightening of credit standards and the large inventory of homes for sale will continue to exert downward pressure on prices.”
Jeannine Cataldi, Manager of the Global Insight Regional Real Estate Service, added that “Indeed, the price declines thus far can be seen as relatively mild given the dramatic fall in home sales. But the evidence indicates that prices are slowly reverting to their historic relationship to economic fundamentals.”
The House Prices in America study, a joint effort by Global Insight and National City Corporation, examines the top-330 U.S. real estate markets, representing 92 percent of the single-family housing market, to determine what home prices should be, accounting for differences in population density, relative income levels, interest rates, and historically observed market premiums or discounts.
Markets with valuation premiums above 33 percent were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 79 known local market price declines observed since 1985.
By Fox 47
