As housing prices drop and affordability soars, more and more buyers and investors are jumping off the fence to buy real estate properties. Home prices have now fallen to a level that the average U.S. home is currently undervalued by 12.2%, according to a new report from IHS Global Insight.
The IHS study, House Prices in America, reported that, of the 330 markets it tracked, homes are under-priced in 248. That contrasts sharply with four years ago when only 108 markets were undervalued.
The report claimed the most undervalued metro area in the nation is Vero Beach, Fla., where the median home price has fallen 29.7% since the first quarter of 2005 to $125,400. That is 42.5% below the expectation. Houma, La., prices, at a median of $113,500, are undervalued by 41.4%. Las Vegas prices have dropped more than 46% since 2005, and the city is now undervalued by 40.9%.
[T]here are still some over-valued areas. Atlantic City, N.J., for example. Here the median price is $243,600, an overvaluation of 44.1%, the most of any metro area. The Ocean City, N.J., median price of $302,100 is the second most overvalued, at 33.8%. In third place is Wenatchee, Wash., which at $247,100, is 29.3% above normal.
In the biggest metro area, New York City, the price is just about right, with a median at $469,400, an under-valuation of just 3.3%. Los Angeles ($357,100) is a bit further off, undervalued by 6.6% and Chicago ($220,800) is down 13.2%. [CNNMoney]
Fifty-seven metro areas had declines greater than 25% from their peaks and 134 had declines greater than 10%. However, nine metro areas – five of them in California – and the rest in Florida, Arizona and Nevada have seen prices decline by more than 50% from their peaks. [IHS]
The nation’s housing market, as a whole, is now slightly undervalued, a sharp contrast to 2005 when over 50 metropolitan areas were seen to be extremely overvalued.
Jeannine Cataldi, senior economist for IHS, cautions however, that a return of real estate markets to their natural equilibrium could take a long time. “Price declines are slowing but we’re still cautious,” she said. “We’re predicting stagnant prices through 2011.”