Study: U.S. Prices Return to Normal

After years of overvalued markets, a new study shows buying a home is getting more affordable and prices are adjusting back to normal levels.
By: Camilla McLaughlin: REALTOR® Magazine Online
“A market returning to normal” is the way Global Insight, a privately held global information company, describes the current housing market, based on the most recent U.S. Housing Valuation Analysis.

The Housing Valuation Analysis — a joint effort by Global Insight and National City Corp. — examines the top 317 U.S. real estate markets using data from the Office of Federal Housing Enterprise Oversight. Taking into consideration differences in population density, household incomes, and interest rates, the analysis determines what home prices should be and how much current prices deviate from that norm.

A Closer Look

“Nearly all markets posted a decline in the level of overvaluation, which signals that the overall housing market is beginning to trend back to more normal price growth,” says Jeannine Cataldi, senior economist and manager of Global Insights Real Estate Service.

The number of markets identified as overvalued decreased to 57 from 60 metro markets in the fourth quarter of 2006. Texas had the highest concentration of undervalued markets with Dallas and College Station-Bryan tying for lowest in the nation.

Although the greatest incidence of overvaluation remains in pockets along the Atlantic and Pacific coasts, corrections are under way in some markets as prices and appreciation rates decline. Approximately 15 percent of the nation’s single-family housing stock experienced price declines in the fourth quarter.

The report finds that New England no longer appears to be “significantly overvalued,” while Orange County, Calif., Tucson, Ariz., Reno and Carson City, N.V., and Kingston, N.Y., fell below the “threshold denoting extreme overvaluation.” Even though these markets are still considered “significantly overvalued,” the report points out that slowing rates of appreciation reflect “a gradual movement toward historical price trends.”

Nationally, according to OFHEO data, prices advanced by 1.8 percent — metrics the report says are more upbeat than those reported by the Commerce Department, which showed an increase of 1.6 percent in median transaction prices. It's also more than the NATIONAL ASSOCIATION OF REALTORS®, which showed a decrease in median prices of 2.8 percent. "Median transaction prices tend to overstate price strength during buoyant markets and understate price strength during soft markets,” according to the OFHEO.