Are Today's Homes Undervalued?
www.RickStrohm.com
Rick & Rick Strohm, Jr.
State of the Economy
After home prices have dropped for the past three years, they appear to be stabilizing. The National 'median' home price today is roughly $169,000, which is down almost 14% from a year ago and an estimated 30% from its peak. It is safe to say that we have reached the point where prices are justified by the fundamentals of the economy and may even represent an undervaluation.
Foreclosures and short sales comprise about 50% of transactions today, creating market distortions in otherwise stable neighborhoods. In determining valuations, we are capturing only transaction prices, and prices of those properties might be 20% below values of other homes.
For that reason, it's possible that widely cited projections that a third or more of home owners are "underwater" might be off the mark. The consequences of these 'missed projections' are very significant. Lenders are shying away from refiancing mortgages of otherwise creditworthy households on the basis that their homes are underwater. By not making these loans, lenders are exacerbating the financial hardship faced by these households.
yet there are encouraging signs on the horizon. The First-Time Home Buyer Tax Credit, which Congress improved two months ago by eliminating the repayment requirement and increasing the benefit to $8,000, is working. That credit, coupled with all-time-high housing affordability and continuing low interest rates, is leading to solid inventory improvements in most markets. Yet when we look only at homes in high-cost ares requiring "jumbo loans", the months' supply is in the stratosphere - almost 45.
Conclusion: It is clear that the challenge today is getting credit moving again for everyone. Until then, markets will continue to be distorted by the disproportionate number of short-sale and foreclosed homes for sale.
If you'd like to know more - contact me.
Rick, Jr.
Source: Lawrence Yun - Cheif economist of the National Association of Realtors