Homes are Undervalued
Alyssa provides a very telling report here. When investors and cash buyers are in the market buying these homes up there is a reason. If you are considering purchasing a home, it is a good time to really consider what your options are.
Even though Alyssa gives us this report from Arizona, these are calculations based on national data.
Capital Economics just released a study based on the Case-Shiller home price index in quarter 4 of 2010. Their report shows that homes are 21% undervalued when compared to disposable income per capital. In addition, they measured the values against the Federal Housing Finance Agency (FHFA) index and found them to be 15% undervalued.
Both calculations show that home values dropped to a new cycle low in Q4 2010.
This undervaluing of properties is attracting cash buyers and investors which will increase demand and decrease supply, thus helping to create a more stable and affordable market. Investors and cash buyers have driven 70% of the increase in purchases since last July.
In addition, another indication that homes are undervalued has to do with replacement cost. Based on values in our current market, it would cost more to replace/rebuild a home than it would to go out and buy an exact replica of the home that is already there. Our market will continue to be considered undervalued until Arizona home values are more in line with replacement/building costs.
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