After four years of falling property values, housing is among the most undervalued assets relative to today's income, say analysts from research firm Capital Economics.
Housing was 21 percent undervalued, compared with disposable income, in the fourth quarter of 2010, according to Capital Economics' study of the latest Case-Shiller home price index. Based on the Federal Housing Finance Agency latest figures, housing was 15 percent undervalued.
“Housing is exceptionally undervalued,” the firm said in a press release, and the gap is getting bigger.
In the third quarter of 2010, Capital Economics' analysis indicated Case-Shiller index readings showed housing was 19 percent undervalued and the FHFA index was 14 percent undervalued.
Home prices across the country decreased again in the fourth quarter of last year. The research firm said the FHFA and Case-Shiller house price indices indicate the cost of homeownership is less than rent in many areas.
The cost to rent a home actually exceeds the cost to purchase in many areas of California. Online real estate tracker Trulia reported in January that in 72 percent of the largest 50 U.S. cities, renting actually costs more than buying. Though the Inland Empire cities of Riverside and San Bernardino were too small to be considered, Long Beach, San Diego, Sacramento and San Jose were all on the list.
The monthly mortgage payment on a median-priced house bought with a 20 percent down payment has fallen to a record low of 13 percent of the median income, Capital Economics said.
During the next year, Capital Economics expects the low demand, elevated supply, and more foreclosures will keep prices down.
The mortgage delinquency rate fell at the end of last year, but it was just a blip on the screen, the firm said. Millions of defaulted properties already in process will continue to negatively impact the market.
In 2010, there were 3,825,637 foreclosure filings on 2,871,891 U.S. properties, both record highs, online resource RealtyTrac reported in February. That was a 2 percent increase from 2009 and a 23 percent hike from 2008. If not for the foreclosure freeze at the end of 2010, experts said, those numbers would have been higher.
In 2011, banks are expected to issue 3.5 million to 4 million foreclosure notices this year and take back another 1 million homes.
With the combined declining home prices and historically low mortgage rates, “The incredibly favorable affordability and valuation environment is the housing market’s one big positive,” the firm said.
The company also said cash buyers and investors have driven existing home sales seen since last July, particularly among heavily discounted foreclosed homes. First-time buyers have been responsible for just 6 percent of the increase in sales of previously owned homes.
For a limited time, you can get a Free Copy of our Special Report, "Home Buyers: Strategies to get the Best Deal and Beat the Competition". It's an $89 value, but free for a limited time. To order your free copy: Call 1-800-941-1900, ext. 9409; or Email your request to BuyerReport@DreamBigRealEstate.com.
Comments(4)