Home / News / Market Studies / Report: U.S. Housing Market Undervalued by 3.8 Percent
Print This Post Print This Post

Report: U.S. Housing Market Undervalued by 3.8 Percent

""IHS Global Insight"":http://www.globalinsight.com, a company providing economic and financial analysis and forecasting, released a third-quarter update to its U.S. housing valuation analysis, """"House Prices in America"":http://www.globalinsight.com/housingvaluation,"" last week. The consultancy said that nationwide, housing prices are now 3.8 percent undervalued based on total market value, and 5.7 percent undervalued when weighted by the number of housing units in the marketplace.
The firm reported that single-family U.S. home prices fell at a faster pace in the third quarter, after moderating earlier in the year, and are now 6.5 percent below their 2007 peak. House prices fell at a 6.9 percent annualized pace, affecting 241 of the 330 metropolitan areas analyzed by IHS Global Insight, up from 150 metro areas in the second-quarter.
While the contraction in residential real estate value is national in scope, it is most severe in the Southeast and Southwest, areas which were among the most overvalued in the country three years ago, the firm explained. According to Global Insight's third-quarter analysis, extreme overvaluation is now ""essentially nonexistent"" - only three metro areas met the definition of extreme overvaluation, down from a peak of 52 metro areas in 2005. Only the Pacific Northwest region remains overvalued, the company said.
According to Global Insight's analysis, home prices fell more than 10 percent in the third quarter in nine central California communities. The Central Valley communities of Merced, Stockton, and Modesto have seen property values fall to less than half their 2005 value.
Twenty-nine metro areas in California, Florida, and Nevada - at one time among the most overvalued - have seen price declines in excess of 30 percent. Similar steep price drops are occurring in Michigan, northeast Ohio, the southern metro areas from Charlotte to Atlanta, as well as in New England, the company said.
Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service, said, ""Weak economic conditions and wary consumers continue to hold the housing market back. Although many areas are seeing home sales increase, it is largely due to foreclosure homes being snapped up at significantly discounted prices. As the inventory of these homes is removed from the market, prices will remain on a downward path.""
According to Global Insight's findings, the overhang of unsold properties trended downward during the third quarter, and demand picked up slightly. The accelerated pace of depreciation likely reflects financing conditions that became increasingly stringent and expensive during this period, the company explained. Global Insight cautions that recent policy responses, from the Federal Reserve in particular, to purchase mortgage-backed securities (MBS) are not likely to have a significant impact on the housing market and property values until next year.
James Diffley, group managing director of IHS Global Insight's Regional Services Group, said, ""With no end in sight to the downward spiral of house prices, it is likely that long anticipated market correction will now overshoot fundamental valuations on the downside.""
The ""House Prices in America"" study is a joint effort by ""IHS Global Insight"":http://www.globalinsight.com/housingvaluation and ""National City Corporation"":http://www.nationalcity.com/housevaluation. It combines a statistical model originally developed by Richard DeKaser, chief economist at National City Corporation, with data largely developed at IHS Global Insight. The study examines the top 330 U.S. real estate markets, representing 78 percent of all existing housing units and 86 percent of all related real estate value, to determine what home prices should be.
For more information on the ""House Prices in America"" housing valuation analysis, ""click here"":http://www.globalinsight.com/housingvaluation.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

Check Also

All-Cash Home Purchases Hit Highest Level Since 2014

In April, all-cash home purchases reached their highest level in nearly a decade. A new report from Redfin reveals elevated mortgage rates driving down overall home sales more than all-cash sales.