More than two years after housing prices peaked at the national level, most metro areas that were primed for a crash have already done so. But when home prices are “extremely overvalued,” it’s never too late for a bust.
Such is the case with three distinct metro areas: Atlantic City, N.J, St. George, Utah and Bend, Ore., according to IHS Global Insight and National City Corporation’s third-quarter U.S. housing valuation analysis. The report found that home prices in these three metro areas remain “extremely overvalued” and “present a risk of substantial price decline (10 percent, or greater) going forward.”
Still, the report found that the sharp decline in real estate prices has all but eliminated extreme overvaluation in major metro housing markets.
According to our latest analysis, the incidence of extreme overvaluation has become negligible. Only 3 markets met that criteria during the [third] quarter: St. George, Utah; Atlantic City, New Jersey; and Bend, Oregon. That compares to 4 extremely overvalued markets during the second quarter and 5 during the first. Overvaluation was most pervasive during the fourth quarter of 2005, at which time 52 metro areas were considered at risk for major price declines.
The markets that are now overvalued are mainly located in the Pacific Northwest, extending to Utah. Southern metros from Mississippi through Texas remain generally undervalued. Notably, the cumulative declines of the past two years have now pushed a number of California and Florida metros into the undervaluation class as well.
On the whole, the report argues that real estate is in fact undervalued--at least at the national level.
For the country as a whole, the housing market is slightly undervalued.When the 330 metro areas are weighted by market value, the nation is 3.8 percent undervalued. When weighted by housing units, the nation is 5.7 percent undervalued.