Tuesday, April 21, 2009

Top 25 to Bottom 35 in just 3 years

Well, the data gods must have been listening to my earlier laments......just yesterday I got wind, via the WSJ, that the Global Insight / National City (now PNC Financial Services Group) housing valuation study is still being published.

While I greatly respect the methodology, the current valuation results don't quite seem credible. In Q4 of 2005 Sacramento was in the top 25 in the nation (ranked from overvalued to undervalued, out of 330 markets), at an overvaluation of 53.3 and a home price of 391.2. That I believe.

Fast forward three years, we are now in the bottom 35 in the nation, with an undervaluation of 22.4, and home price of 216.5 (the price seems right, but the undervaluation does not).

In fact they are showing that much of California is undervalued or fairly valued.

If I had to guess why their valuation seems off , it's because they take into account interest rates in their affordability calculation. Yes, interest rates are historically low, but not everyone can get a loan with today's more rational underwriting requirements especially at the higher end.


Jacob said...

I wonder if the affordability is even based on a 30y fixed, or some alt-a interest only gimmick.

How can we be undervalued when every economist (now) is estimating more declines?

Base it on buying a home at 3x income and lets see where the affordability comes in at.

But however flawed, the trend, and the change in just 3 years is mind blowing.

Lander said...
This comment has been removed by the author.
Lander said...

Here's a long-term perspective of overvalued/undervalued metric. The number on the right is the peak over/undervaluation.

3.75 years (89-93) Overvalued +16.8
9.25 years (93-02) Undervalued -24.4
5.50 years (02-07) Overvalued +55.0
1.00 year (08- ) Undervalued -22.4*

*so far

Buying Time said...

Jacob - Being undervalued, does not mean we can't have more price declines. Just as being overvalued didn't mean we can't have more price increases.

Lander I sometimes imagine you are a big wig in the Sac Business community, since you have such a huge depth of historical data and knowledge.

Jacob said...

I guess it just doesn't make sense to me to call something undervalued when it is still overvalued relative to the prices the market is willing to pay.