RISMEDIA, Dec. 5, 2008-IHS Global Insight, a leading company for economic and financial analysis and forecasting, today released the third-quarter 2008 update of the U.S. housing valuation analysis, House Prices in America, showing that single-family U.S. home prices fell at a faster pace across a wide area of the country – after moderating earlier in the year – and are now 6.5% below their 2007 peak. House prices fell at a 6.9% annualized pace, affecting 241 of the 330 analyzed metropolitan areas, up from 150 metro areas in the second-quarter 2008. For the United States as a whole, the housing market is now slightly undervalued. When weighted by market value, the nation is 3.8% undervalued; when weighted by housing units, it is 5.7% undervalued.
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. According to the 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 remains overvalued.
According to the analysis, the overhang of unsold properties trending downward during the third quarter, and demand picking up slightly, the accelerated pace of depreciation likely reflects financing conditions that became increasingly stringent and expensive during this period. Recent policy responses, from the Federal Reserve in particular, to purchase mortgage-backed securities are not likely to have a significant impact until next year.
Home prices fell more than 10% 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%. Similar steep price drops are also occurring in Michigan, northeast Ohio, the southern metro areas from Charlotte to Atlanta, as well as in New England.
The incidence of extreme overvaluation has become negligible; only Atlantic City, New Jersey; Bend, Oregon; and St. George, Utah met the criteria. Overvalued markets are mainly located in the Pacific Northwest, extending to Utah. Southern metro areas from Mississippi to Texas remain generally undervalued.
Jeannine Cataldi, senior economist and manager of IHS Global Insight’s Regional Real Estate Service, added, “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.”
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, a joint effort by IHS Global Insight and National City Corporation, examines the top 330 U.S. real estate markets, representing 78% of all existing housing units and 86% of all related real estate value, 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 35% 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.
House Prices in America combines a statistical model originally developed by Richard DeKaser, chief economist at National City Corporation (www.nationalcity.com/housevaluation) with data largely developed at IHS Global Insight.
For more information, visit www.globalinsight.com/housingvaluation.