My favorite housing study was just updated for the 2Q 2008. While I really love the methodology used by the National City - Global Insight Housing Valuation Analysis I am starting to wonder if their statistical models have been skewed by the housing boom. As they now consider most of California to be fairly valued.
A small excerpt, "Extreme overvaluation is essentially nonexistent. Only six metro areas are judged to be overvalued during the second quarter of 2008, down from a peak of 51 metro areas in 2005. The decline of overvaluation is even greater when measured as a share of total housing units and real estate value."
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You know I was thinking about how the housing bubble, 2001-2005, as skewed the rental price to own ratios. I hear a lot of numbers thrown out there and some just don't seem right.
I think we need a data note, something to the effect, for historical comparison purposes bubble years have been excluded.
This is why I have to take any one study with a grain of salt. For all the factors they do consider, their are always many more that they don't - in this case, affordability, which is still not where it should be.
I think this study is not that far off in terms of medians, but the price ranges of the homes has more to do with the bottoming than anything else.
Area in the price ranges that had high concentrations of sub-prime loans and sub-prime borrowers have dropped much more sharply that areas that are higher priced.
The higher priced areas are waiting for the alt-a implosion to follow the lower priced areas to the bottom. loanperformance.com has some good data on the subject.
To put my money where my mouth is I am buying at the low end and have found 2 deals that I think price in appropriate amount of risk and think they will be winners over time. I certainly think they will out pace the DJIA over the next five years including cash flows.
I live in a home that I expect to decline in value another 20%, but since it is already worth less than the replacement cost and I don't want to move I am comfortable holding on for the long run.
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