Are U.S. homes undervalued? A new survey suggests they are, but don't confuse that fact with 'a good time to buy a home.'U.S. home prices fell at a 6.9% annual pace in Q3, and are down 6.5% from their 2007 peak, with prices falling in 241 of 330 metropolitan markets, a survey by IHS Global Insight shows, marketwatch.com reported. Further, compared to their long-term fundamental values, U.S. homes are now 3.8% undervalued.
Undervalued homes? Yes, but...
Undervalued, yes. But does undervalued mean U.S. home prices are not likely to fall further? BloggingStocks asked economist Peter Dawson for an assessment.
"Home prices most certainly can fall further, and will continue to do so in most markets over the next year," Dawson said. "Potential home buyers have to keep in mind that just because a home in, say, Miami was $725,000 last year and is priced at $600,000 this year, and is 'undervalued,' that doesn't mean it can't fall to $500,000 or less by next year. And the price trend in most markets remains down. Home buyers need to keep sight of that."
The key factor in detecting home price trends, in Dawson's view? Home inventories. At the end of October, the supply of unsold, existing homes totaled a 10-month supply, at the current sales pace, according to National Association of Realtors data. The normal existing home supply is 3-5 months in a healthy market. Dawson said.
The NAR also said the national, median existing-home price for a single family home was $181,800 in October, down 11.2% from a year ago.
"There is a huge inventory of unsold, existing homes," Dawson said. "This unsold inventory will continue to drive prices lower in most markets, so don't look for prices to flatten and begin to rise until inventories get down to a 5-6 months supply. We're a long way from that."
Dawson's rules of thumb for potential home buyers: Unless you find your dream house "that you must have," or otherwise must buy, don't buy now. You'll most likely pay less for a house in a year, in most markets, if you wait. Also, if possible, consider renting/leasing for a year if you must move to a new city/area: that will give you more time to evaluate market conditions, among other advantages.
Housing Sector / Economic Analysis: It remains a decidedly buyers' market in housing in most U.S. metro areas. Therefore, take your time, if you have the time to research and explore home alternatives. Don't make the mistake one friend-of-a-friend made: they bought a house in Southern California about six months ago for $575,000. Comparable homes are now selling for $520,000.
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Reader Comments (Page 1 of 1)
12-05-2008 @ 4:15PM
Mike O said...
The value of something is what the market will bear.
How can you say a house is 'worth' $600k when the market will only pay $500k?
I could go around saying that my time is worth $1000 an hour, though I would have a REAL tough time finding anyone willing to pay it.
12-05-2008 @ 4:24PM
JCH said...
They were worth $725,000 because every Tom, Dick, and Harry could get a loan for $725,000.
If Tom, Dick and Harry have to meet minimum requirements, they'll be lucky to qualify for a $250,000 loan - after several years of saving up pennies to get a 20% down payment.
GWB built around 7 to 10 million houses for which there are no qualified buyers.
12-05-2008 @ 4:41PM
Ben said...
How many people could qualify for a 725,000 loan? First you'll need a 145k down. and a job that pays your 14k a month.
How many people can really afford that? and honestly I don't think there are plenty of people who could afford it at 600k either (120k down + 11k monthly income).
12-05-2008 @ 4:42PM
Iridium said...
Gebus frickin christ, homes are not undervalued. They are still overvalued by a large margin. In some areas still by 200% or more.
When you could buy a 4 bedroom 2200 sq ft lakefront house in Rocky River outside of Cleveland for $140k in 1990. Then in 2005 that same house is $750k, something is terribly wrong. The same houses are now on the market for around $500k. Half a million dollars for a house in Cleveland. Sorry but that is still insane.
I'm not talking about mansions here either. Just a bigger middle class house. Tiny starter homes are still over $200k. The houses that sold for $70,000 in the early '90s. Real wages haven't gone up at all since then. Why should a house go up 300% in value.
12-05-2008 @ 5:36PM
Uhohchongo said...
Undervalued? LOL!!
If you want the current value of any property, send it to auction.
12-05-2008 @ 5:48PM
George WAshington said...
When loan qualification requirements get back to normal (requiring a significant down payment) and there are suficient buyers that meet those requirements, prices will settle out. Until that happens everything is over priced. I live in Florida and I watch people move down here and pay ridiculous prices for houses that are shoddy built. Most houses and land have gone up 400-600% in less than 5 years. Idiots like that ruin the housing market for everyone.
12-05-2008 @ 6:18PM
william lindblad said...
The clear an easy way to determine home value is to compare market cost to wages for a given geographic locale. If the bulk of any given area is "X" = equaling 30 dollars an hour compared to an "X" of 10, than the price to put a roof over ones head should reflect in that market.
Given current, with mass layoffs, tight credit and consumer fear - prices will continue to slide.
The banking system, with the help of Glass-Steagle created this new depression by ignoring age old practice of getting some money down and checking on the potential of getting re-paid. As many others have said - getting a loan which had little chance of being repaid was a recipe for economic disaster.
Between the banks and Congress - we don't have a chance.