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By Roger Showley, Union-Tribune Staff Writer
2:00 a.m. June 4, 2009
San Diego County used to be one of the nation's most overpriced real estate markets, as much as 40 percent above historic norms, according to the IHS Global Insight financial analysis company.
Yesterday, in a dramatic turnaround, Global Insight said housing prices in San Diego are 21.2 percent undervalued.
“It's definitely coming back from the boom,” said Global Insight economist Jeannine Cataldi.
The median price for a single-family home was $327,300 in the first quarter, the company said. Based on historic trends for household income, affordability and appreciation, the “normal” value should have been $415,300.
That contrasts with the peak of the boom market, in the third quarter of 2005, when Global Insight found the median price of $506,500 was above the norm by $144,100, or 40 percent.
From the peak, local housing prices have fallen 35.4 percent, back to a level last seen in the fourth quarter of 2002, the company said.
This was the fourth consecutive quarter that San Diego housing prices were below what the company considers to be the normal price. It was the biggest gap since the second quarter of 1999, when the median price of $190,400 was $53,400, or 21.9 percent, below the theoretical norm.
And as economists well know, San Diego wasn't alone as the housing bubble inflated and then deflated in many markets.
Global Insight said that while first-quarter prices fell in 199 of 330 metro areas from fourth-quarter levels, including San Diego (down 1.9 percent), the entire nation is slightly undervalued.
In the company's calculations, six areas are extremely undervalued, with Vero Beach, Fla.'s $125,400 median price 42.5 percent below the norm. San Diego ranked as the 61st most undervalued market.
Riverside-San Bernardino's first-quarter median of $183,400 was 15.7 percent below its norm; Orange County was 10.9 percent below its norm at $457,000; and Los Angeles was 6.4 percent below its norm at $357,100.
Meanwhile, only one area, Atlantic City, N.J., was considered extremely overvalued – defined as more than 35 percent – with its $243,600 median price 44.1 percent above the norm.
Redding was the highest-ranked California city, yet its median of $180,400 was still 6 percent below its norm.
“You can look at California, Las Vegas, Phoenix, all the areas where the boom really took hold,” Cataldi said. “Those markets definitely overinflated because of buying activity and are now being pulled down below the norm, because so many of them are being hit hard with foreclosures and short-sales which came out of the boom.”
But Cataldi said the level of undervaluation does not apply equally to all houses.
“It depends on the home itself,” she said. “And the home is worth what someone is willing to pay for it.”
The difficulty today is that more than half the sales in San Diego involve foreclosures and short-sales – homes sold for less than the loan balance – and relatively few nondistressed properties are on the market. There also is a preponderance of low-cost, starter homes for sale and a paucity of moveup and high-end homes, whose owners don't want to sell unless they absolutely have to.
Global Insight said downward pressures in the distressed markets are “clearly magnified” but the company did not quantify the impact.
University of San Diego housing professor Norm Miller said the Global Insight finding “makes sense” and represents a “useful exercise.”
“We tend to always be moving toward the fundamentals,” he said. “When you get these adjustments away from the fundamental values, they usually happen quickly and movements toward fundamental values always happen slower.”
He said the normalized values that Global Insight has estimated back to 1985 represent a reliable indicator of where San Diego prices should be.
But he said the Global Insight model does not reflect short-term changes in interest rates and lender underwriting standards or the stop-and-start nature of the building industry.
“You have to use all models with caution, but this is an excellent indicator,” he said. “When you see markets overshoot on the downside, they will head up and probably so. This is as good a forecast as most.”
As for San Diego, whose normalized median price since 1985 has risen without pause, according to Global Insight's model, Miller said environmental and zoning rules will probably remain in place to constrain supply and thus push up prices.
“So it does make sense in the long run that we will adjust back on the other (upward) direction,” he said.
The nice areas of Southern California are still unaffordable to middle-class families, you need a good $120k income to given get a crappy starter home.
I just used zillow to pull three recent sales in Ladera Ranch in OC. This is considered a very desireable family neighborhood with excellent schools. All were SFR, 5BR homes. These homes below are probably above the median house price for Ladera Ranch.
In one sense, these are 1997 prices if you assume linear 4% (historically realistic) real estate appreciation. We bought in a similar neighborhood in 1997 (the lowest point of the market) in Thousand Oaks for $150/sqft. $150/sqft at 4% per year is $240/sqft in 2009.
Caveat: The house we bought in TO was brand new from the builder with no upgrades, no landscaping, no window coverings, etc. Also, rates back then were around 6.5%, 30 year fixed, if I recall correctly.
So Charles, based on what you are saying, these houses are still not UNDERvalued, based on square footage; and given the median income for the area, they are still completely out of the median family's reach.
If 'undervalued' means that $200K will only get you a tiny fixer in an x-urb 60 miles from city center, then most people should just give up their dream of home ownership. You know, if the undervalued thing is true....
So Charles, based on what you are saying, these houses are still not UNDERvalued, based on square footage; and given the median income for the area, they are still completely out of the median family's reach.
I'm really not sure about it all. If the median income is around $100K, and there is some sort of rule of thumb of what? three times your median is what you can afford for house? or something like that???
So the median for that zip code should be in the maybe $300K to $350K?
Here's from redfin for that zip:
Median House Values
Select a neighborhood, zip code, or city for more stats.
List $ $/Sq. Ft. Sale/List
92694 $859,271 $275 96.0%
Ladera Ranch $859,271 $275 96.0%
Not sure of the sample history of those above stats.
You need to realize that the IHS Global Insight housing price model doesn't just rely upon income data. It is a specific formula, which they own in evaluating value:
House Prices in America, a joint effort by IHS Global Insight and The PNC Financial Services Group, Inc. examines the top 330 U.S. real estate markets, representing 78.1% of all existing housing units and 92% of all related real estate value to determine what house prices should be, accounting for differences in population density, relative income levels, and historically observed market premiums or discounts. Markets with valuation premiums above 35% were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 79 known local price declines observed since 1985.
So how do they expect anyone to afford these "undervalued" houses if income is not a factor? Sure, anjyone making $100k/yr can "afford" that $800k house with 100% financing, stated income, interest only, 3% teaser rate and 50% housing cost to income ratio but when the bank actually stop making crazy loans we see how much money people REALLY have and the market collapses.
By Roger Showley, Union-Tribune Staff Writer
2:00 a.m. June 4, 2009
San Diego County used to be one of the nation's most overpriced real estate markets, as much as 40 percent above historic norms, according to the IHS Global Insight financial analysis company.
Yesterday, in a dramatic turnaround, Global Insight said housing prices in San Diego are 21.2 percent undervalued.
“It's definitely coming back from the boom,” said Global Insight economist Jeannine Cataldi.
The median price for a single-family home was $327,300 in the first quarter, the company said. Based on historic trends for household income, affordability and appreciation, the “normal” value should have been $415,300.
That contrasts with the peak of the boom market, in the third quarter of 2005, when Global Insight found the median price of $506,500 was above the norm by $144,100, or 40 percent.
From the peak, local housing prices have fallen 35.4 percent, back to a level last seen in the fourth quarter of 2002, the company said.
This was the fourth consecutive quarter that San Diego housing prices were below what the company considers to be the normal price. It was the biggest gap since the second quarter of 1999, when the median price of $190,400 was $53,400, or 21.9 percent, below the theoretical norm.
And as economists well know, San Diego wasn't alone as the housing bubble inflated and then deflated in many markets.
Global Insight said that while first-quarter prices fell in 199 of 330 metro areas from fourth-quarter levels, including San Diego (down 1.9 percent), the entire nation is slightly undervalued.
In the company's calculations, six areas are extremely undervalued, with Vero Beach, Fla.'s $125,400 median price 42.5 percent below the norm. San Diego ranked as the 61st most undervalued market.
Riverside-San Bernardino's first-quarter median of $183,400 was 15.7 percent below its norm; Orange County was 10.9 percent below its norm at $457,000; and Los Angeles was 6.4 percent below its norm at $357,100.
Meanwhile, only one area, Atlantic City, N.J., was considered extremely overvalued – defined as more than 35 percent – with its $243,600 median price 44.1 percent above the norm.
Redding was the highest-ranked California city, yet its median of $180,400 was still 6 percent below its norm.
“You can look at California, Las Vegas, Phoenix, all the areas where the boom really took hold,” Cataldi said. “Those markets definitely overinflated because of buying activity and are now being pulled down below the norm, because so many of them are being hit hard with foreclosures and short-sales which came out of the boom.”
But Cataldi said the level of undervaluation does not apply equally to all houses.
“It depends on the home itself,” she said. “And the home is worth what someone is willing to pay for it.”
The difficulty today is that more than half the sales in San Diego involve foreclosures and short-sales – homes sold for less than the loan balance – and relatively few nondistressed properties are on the market. There also is a preponderance of low-cost, starter homes for sale and a paucity of moveup and high-end homes, whose owners don't want to sell unless they absolutely have to.
Global Insight said downward pressures in the distressed markets are “clearly magnified” but the company did not quantify the impact.
University of San Diego housing professor Norm Miller said the Global Insight finding “makes sense” and represents a “useful exercise.”
“We tend to always be moving toward the fundamentals,” he said. “When you get these adjustments away from the fundamental values, they usually happen quickly and movements toward fundamental values always happen slower.”
He said the normalized values that Global Insight has estimated back to 1985 represent a reliable indicator of where San Diego prices should be.
But he said the Global Insight model does not reflect short-term changes in interest rates and lender underwriting standards or the stop-and-start nature of the building industry.
“You have to use all models with caution, but this is an excellent indicator,” he said. “When you see markets overshoot on the downside, they will head up and probably so. This is as good a forecast as most.”
As for San Diego, whose normalized median price since 1985 has risen without pause, according to Global Insight's model, Miller said environmental and zoning rules will probably remain in place to constrain supply and thus push up prices.
“So it does make sense in the long run that we will adjust back on the other (upward) direction,” he said.
Me and My wife make a little over 200K per year and still cant afford a home over 1200 sq. feet. Property Tax + HOA Combined with a 400 K mortgage is over $3000/Month combine that with other bills & School loans etc it ads up to over 7000k a month in bills. Unless you're buying a 800 Square foot condo, finding a decent sized home under 400 K when you have other responsibilities is almost impossible here.
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