REALTOR® Magazine: Economy

Are Today's Homes Undervalued?

An over-correction on prices will delay economic recovery.
By Lawrence Yun | July 2009
After dropping for three years, home prices appear to be stabilizing. The median national home price today is about $169,000, down almost 14 percent from a year ago and an estimated 30 percent from its peak. It’s safe to say we’ve 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 percent of transactions today, creating market distortions in otherwise stable neighborhoods. In determining valuations, we’re capturing only transaction prices, and prices of those properties might be 20 percent 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 significant. Lenders are shying away from refinancing 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 areas requiring jumbo loans, the months’ supply is in the stratosphere: almost 45.

What’s clear is 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.

Source: REALTOR® Magazine Online."

Cynthia Rodriguez
Licensed Sales Associate
www.cynthiarodriguezonline.com
www.cynthiarodriguez.listingbook.com
cynthiarodriguezrealtor@gmail.com