An eye-catching national housing market study was released in January 2006, right in the middle of the infamous bubble that when it deflated with a lot of noise it threw the country's economy into a tailspin that it is still trying to get out of. It explained that the most overvalued, yes overvalued, real estate then was largely concentrated in California and Florida. Small surprise there. Naples, FL, was crowned the leader in that, being a whopping 84% above what property actually ought to cost. It's anyone's guess how many people would've dared to buy a house there those days had they known, and believed, the overvaluation. Las Vegas is found at the 47th spot, overvalued by 38%.
The report was prepared by IHS Global Insight, a financial information shop, and National City, a financial holding company, since bought out by PNC Financial Services. The research was based on an analysis of median home prices, population density, income levels, local mortgage interest rates and historic premiums or discounts. The numbers for 2006 can be checked out here.
That was then. Today's real estate market only four short years later looks drastically different. So different that modern English language really doesn't have a word for it. The same two financial and real estate research stores published their latest report the other day, using identical criteria as before. This time the focus is squarely on how undervalued, undervalued that is, most markets have become.
Las Vegas housing market has surged to the forefront of the most undervalued list, as many would expect it to do, knowing Sin City's soaring mortgage foreclosure rates, rampant overbuilding and high unemployment. According to this study, real estate in Southern Nevada now sells 41.4% under fair market value. It has swung from being overvalued by 38% to now being way below what it should be. Simply amazing. UNLV students, and others across the land, majoring in finance and real estate must find this development fertile ground for thesis material.
Chasing the Las Vegas housing market for the lead were Vero Beach, FL, at 39.8% undervaluation and Merced, CA, at 37.7%. The stats can be accessed here.
For Las Vegas real estate the bad news is that scores of existing homeowners have seen their equity vanish into thin air and often actually thrown them underwater - the mortgage balance is higher than the home is worth. This is going to have a painful impact on any future upswing as these people are in essence trapped in their homes and cannot be part of the demand side for a while. On a positive note, first-time buyers and real estate investors are happily finding bargains just about under every rock in the desert and are taking advantage of them, too. Affordable mortgage money is also a tempting incentive for those who need financing.