Wait a second.....appears Global Insight already has it covered! This is the best statistical analysis I have seen yet. Global Insight is highly regarded in the industry. In fact my company purchases their economic MSA data for our forecasting work. This study came out in March 2007, not sure how I missed it.
http://www.globalinsight.com/Highlight/HighlightDetail2350.htm
Some highlights:
Of course Sacramento, as well as the rest of the Central Valley, were at the top of the most overvalued MSAs (out of 317). According to this study, Sacramento is currently 41.2% overvalued compared to 6% in Q4 of 2002.
They also note past corrections in various markets. Previously Sacramento housing valuations peaked in Q1 of 1991 at 17% overvalued and slid 14% from 1991Q2-1996Q3.
Interestingly they note that the more severe the overvaluation, the larger the declines and the shorter the duration of the decline. On average, for past declines, overvaluation was 35% and subsequent declines 16% over 16 quarters. Based on the averages, it looks like we have at least 10 more quarters ahead of us.
How I found this study - The WSJ has been keeping tabs on 18 or so real estate markets. Sacramento is one of them. I know Sac is not in top 18 largest metro areas....and decided to see where they ranked (in the mid 30s by most variables). As I mentioned above, our company purchases their data, but after reading the use agreement, I realized I shouldn't share their data on my blog without asking permission. So I went to their site, and happened upon this really fantastic study.
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1 comment:
Litmus test - of course the Boston bean counters are all out buying that under priced property in Texas, Oklahoma, Mississippi and Louisiana?
Sometimes you have to check the PHD at the door.
Property values in the overpriced markets are determined by those with the most dollars who are buying, there is some correlation with average income.
Property values in the underpriced markets are determined by those who stayed - mostly poor.
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