Housing Prices Fall Below Replacement Costs

Housing consultancy Global Insight reports that nationwide, housing prices are now 3.8 percent undervalued, based on total market value. It says values fell at a faster pace in the third quarter after stabilizing earlier in the year.

According to Global Insight’s calculations, prices are now 6.5 percent below their 2007 peak. They fell at a 6.9 percent annual pace affecting 241 of the 330 metropolitan areas analyzed by Global Insight. That’s up from 150 metro areas affected in the second quarter.

Contraction is most severe in the Southeast and Southwest with only the Pacific Northwest remaining overvalued, Global Insight says.

Home prices fell more than 10 percent in the third quarter in nine central California communities. The Central Valley communities of Merced, Stockton, and Modesto have seen property values fall to less than half their 2005 value. Twenty-nine metro areas in California, Florida, and Nevada ­– at one time among the most overvalued – have seen price declines in excess of 30 percent. Similar steep price drops are occurring in Michigan, northeast Ohio, the southern metro areas from Charlotte to Atlanta, as well as in New England.

"Weak economic conditions and wary consumers continue to hold the housing market back. Although many areas are seeing home sales increase, it is largely due to foreclosure homes being snapped up at significantly discounted prices. As the inventory of these homes is removed from the market, prices will remain on a downward path," predicts Jeannine Cataldi, senior economist and manager of Global Insight’s Regional Real Estate Service.

Source: Global Insight (12/03/2008)