Global Insight, a leading financial and economic information company, published a study today entitled “
House Prices in America: Valuation Update” which provides an interesting analysis of the hyper over inflated housing market.
The approach taken by the researchers was to use a combination of economic factors such as house prices, interest rates, household incomes, population densities, and historical premiums or discounts metropolitan areas have exhibited over time to determine “statistically normal” house values, then to compare actual house values in order to derive the extent of under or over evaluation.
What seems particularly striking is that the report suggests that as recently as the first quarter of 2004, only 3 metro areas, accounting for only 1% of single family homes, would qualify as being overvalued using their method.
Of course, it’s important to keep in mind that there are many different ways to perform normalized home valuations (rental P/E ratios, analysis of historical events contributing to home appreciation, etc.) and that the researchers work has simply demonstrated that using several fundamental factors that traditionally effect home values, recent gross over valuation is very apparent.
Some key points:
- 71 metro areas, accounting for 39 percent of all single family housing value, were deemed to be extremely over-valued.
- The coastal states of California and Florida continue to show the highest concentration of overvalued markets, accounting for 17 of the top 20.
- Quarter-to-Quarter price appreciation is slowing in most metro areas, and is nearly flat in San Diego and Boston.
NOTE: The appendix of the report lists home valuations, using their method, from Q1 20002 to Q1 2006 for many local housing markets across the country. Look to see if you concur with the report for your area, then let me know if you agree with their evaluation.
