LEXINGTON, Mass. (March 19, 2010) – House prices in extremely overvalued U.S. metropolitan areas declined nearly 37 percent on average between 2005, the peak of the real estate bubble, and the fourth quarter 2009 when prices stabilized, according to the fourth quarter 2009 report of House Prices in America, the quarterly update on real estate values from IHS Global Insight.
At the peak of the bubble, 137 metro areas of the 330 in the study were either extremely or significantly overvalued. There were no extremely overvalued metro areas at the end of 2009. For the country as a whole, the housing g market is now slightly undervalued. When weighted by market value, the nation is 8.9 percent undervalued; 10.3 percent undervalued when weighted by housing units.
"Despite the ever-increasing risk of overvaluation – and subsequent devaluation – buyers continued to purchase properties at heavily inflated prices," said Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service
"The high risk of a home price collapse that we reported in 2005 was borne out, and the subsequent price declines across metropolitan areas is very closely correlated with our valuation metric," said James Diffley, group managing director of IHS Global Insight's Regional Services Group. "The higher the overvaluation, the harder the crash."
In more than half of the 52 U.S. housing markets found by IHS Global Insight to be extremely overvalued in 2005, prices appreciated more than 90 percent from when the bubble began in early 2002. The metro areas of California and Florida dominated the extremely overvalued list at the end of 2005. Overall, 10 metro areas have seen prices decline by more than 50 percent from their peaks, led by Merced, Calif., down 64 percent and including Las Vegas, down 58 percent. There are now 31 metro areas with declines greater than 40 percent from their peaks.
For the fourth quarter 2009, prices fell by only 0.1 percent quarter-to-quarter, according to the Federal Housing Finance Agency, indicating that the housing market is close to achieving stabilization. The number of markets showing a price decline from the third quarter to the fourth was 244, up from 164 markets from the second quarter to the third.
House Prices in America, a joint effort by IHS Global Insight and The PNC Financial Services Group, Inc. (NYSE:PNC), examines the top 330 U.S. real estate markets, representing 78.4 percent of all existing housing units and 87.3 percent of all related real estate value to determine what house prices should be, accounting for differences in population density, relative income levels, and historically observed market premiums or discounts. Markets with valuation premiums above 34 percent were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 79 known local price declines observed since 1985.
House Prices in America combines a statistical model owned by PNC with data largely developed at IHS Global Insight. More information on IHS Global Insight's housing valuation analysis is available at www.ihsglobalinsight.com/housingvaluation.
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IHS Global Insight (www.ihsglobalinsight.com), an IHS company, provides the most comprehensive economic and financial information available on countries, regions and industries, using a unique combination of expertise, models, data and software within a common analytical framework to support planning and decision-making. Through the world's first same-day analysis and risk assessment service, IHS Global Insight provides immediate insightful analysis of market conditions and key events around the world, covering economic, political, and operational factors. IHS (NYSE: IHS) is a leading global source of critical information and insight, dedicated to providing the most complete and trusted information and expertise. IHS product and service solutions span four areas of information that encompass the most important concerns facing global business today: Energy, Product Lifecycle, Security, and Environment supported by Macroeconomics. IHS has been in business since 1959 and employs more than 4,200 people in 30 countries.
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