Numbers lie about undervalued
By Louise Bolger
SUN STAFF WRITER
As if owning and investing in real estate
isnt complicated enough, now you have to consider if
the market you live or invest in is "overvalued."
A study that came out in early January analyzed 299 real estate
markets to determine if they were overpriced and by how much.
The Housing Market Analysis was conducted by National City
Corp., a financial holding company, in conjunction with Global
insight, a financial information provider. The conclusion
was that 38 percent of the 299 metro housing markets are extremely
overvalued and at risk for a price correction.
National City arrives at its estimates of what the typical
house in these markets should cost by examining the towns
population densities, local interest rates, and income levels.
It also factors in historical premiums and discounts for each
area. If these numbers translate to 30 percent higher than
the estimates, the area qualifies as overvalued.
The report named Naples, Fla. as the most overvalued of all
housing markets in the United States. A single family, median-priced
home there sells for $329,970 (I challenge you to find one),
84 percent more than what it should cost. The top 10 overvalued
regions were all in either Florida or California. Port St.
Lucie, Fla. was fourth at 72 percent overvalued, the California
cities went from a high of Merced at 77 percent to Riverside
being 10th at 65 percent.
Some areas per the report are starting to trend back to normal
valuations. For example, Massachusetts had seven overvalued
markets, however, prices had fallen in all seven, bringing
the values more in line. The same could not be said of Florida.
The Sunshine State had 15 different markets on the list of
"extremely" overpriced metro areas (three areas
were still overvalued but not extremely so), and all 15 had
grown more overpriced during the quarter.
As far as our immediate area goes, Sarasota and Tampa were
both part of the analysis. Sarasota came in at number 20 out
of the 299 with a 56 percent overvalued percentage, and Tampa
further down the scale with a 34 percent overvalued rate.
Theres little doubt, in my mind at least, that if National
City Corp. chose Anna Maria Island to analyze it would certainly
come in overvalued.
What exactly does this all mean? My personal and unscientific
opinion is that its almost impossible to do a fair evaluation
in a region that has a large population of wealthy retirees.
Income levels for this group of residents may not justify
the amount of money they spend on housing. It is not necessarily
a parameter of total wealth, which is what really determines
the dollars spent on homes. The analysis may be valid in regions
not known for their retiree population like some cities in
California, but the residents of Naples and Sarasota spend
more time reading the stock returns than working on their
weekly stream of income.
That being said, there are cities that you can still live
in where real estate sales prices closely track the expected
values, Albuquerque, N.M., Dayton, Ohio and Omaha, Neb., all
came in at zero percent, neither overvalued or undervalued.
But if you want a bargain, move to Texas; the state dominated
the discounted markets list with the most undervalued housing
Being a firm believer in the free market, Im not sure
I accept the concept of an overvalued market. Like any other
commodity, the real estate market will seek its own level.
If the price is too high no one will buy, its really