Areas experiencing the greatest declines continue to be in Florida, California and Nevada – states that experienced the highest levels of overvaluation as the housing bubble expanded – and Michigan, feeling the double whammy of the national recession and the contraction in the U.S. auto industry. Fifty-seven metro areas had declines greater than 25% from their peaks and 134 had declines greater than 10%. However, nine metro areas – five of them in California – and the rest in Florida, Arizona and Nevada have seen prices decline by more than 50% from their peaks.
The nation's housing market, as a whole, is now slightly undervalued, a sharp contrast to 2005 when 52 metropolitan areas were seen to be extremely overvalued. Extreme overvaluation was essentially nonexistent in the first quarter, existing for the second straight quarter only in Atlantic City, NJ.
Only the Pacific Northwest, extending across a wide region through Idaho and Utah, remained overvalued.
Home prices declined by more than 10% in five metro areas and by more than 5% in 26 in the first quarter, compared with 104 declining by more than 10% and 16 by more than 5% in the previous quarter.
Southern metros, especially in Texas, have remained generally undervalued throughout the study's five-year life. The most dramatic changes in valuation have occurred in metro areas in California and Florida where many have gone from extremely overvalued to undervalued in a span of two years. Magnifying the downward pressure on prices in these areas are the huge number of foreclosures and other short sales, as well as the large inventory overhand of unsold homes.
Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service, said: "The good news is that the declines are happening as consumer confidence is rising and housing sales and starts seem to be bottoming out; the bad news is that job losses continue at high rates, housing inventories are still elevated and consumers, while becoming somewhat more confident, are still wary in the face of economic uncertainty."
James Diffley, group managing director of IHS Global Insight's Regional Services Group, said: ”While it's too early to see a bottom of this housing downturn, this quarter's deceleration in the rate of decline may signal that the market is beginning to stabilize."
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.
