Home prices have fallen below fundamental values in more than half of U.S. states, overcorrecting from bubbles in some markets and dragged down by the recession in others.
According to the PMI Group monthly analysis, States where house prices are too low, although they had no bubble Indiana is a good illustration of a surprising pattern seen for areas where prices tracked incomes quite closely even during the housing bubble, but then still got hit by declining house prices as a result of the Great Recession. Other states with similar patterns include Arkansas, Kentucky, Kansas, Iowa, Mississippi, Nebraska, Ohio, Oklahoma, South Dakota, Texas, and Wyoming. It is likely that house prices in these areas will recover along with job growth, which is already happening in manufacturing and agriculture.
States where house prices remain at above-trend levels
Unlike the examples above, where house prices have fallen significantly below their income-determined equilibrium levels, New York house prices remain out of balance with income - despite large price declines. It is possible that desirable living areas that are space-constrained can grow more expensive relative to per capita income over time than areas with fewer constraints (and perhaps less desirable living conditions). Or, it may be that prices will fall further in the future to bring house prices and incomes back into line (of course, incomes should rise over time, too, so the future drop in prices may be less than indicated by the current difference between prices and income). Other areas with similar recent patterns include Alaska, California, Hawaii, Massachusetts, New Jersey, New Hampshire, Oregon, South Carolina, and Washington DC. It is hard to know if these areas are at a house price bottom yet.
States where house prices are in balance
Finally, in many states house prices are back in line with historical norms relative to per capita income. This list includes Arizona, Connecticut, Colorado, Delaware, Florida, Louisiana, Maine, Maryland, Minnesota, North Carolina, North Dakota, Tennessee, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington, Wisconsin, and the U.S. average.