Repossession Property Prices Fall, Affordability Rises

Home affordability has reached record levels nationwide as new home prices and repossession property prices continue to go down. According to a study by IHS Global Insight on U.S. homes prices, the average house has lost value by 12.2 percent.

Out of the 330 housing markets tracked by IHS, there are 248 markets where houses are undervalued. Four years ago, there were only 108 markets where houses were under-priced.

In markets such as Phoenix and Las Vegas, where home prices shot up during the boom, prices have declined so steeply that large numbers of investors have snapped up repossession property units. Oftentimes they rent the properties back to the previous owners.

IHS economist Jeannine Cataldi said the advantages of high affordability levels are improved consumer confidence and home sales. She said the downsides are increased job losses, higher inventories of unsold homes and repossession property units and consumers’ feelings of uncertainty.

The IHS report said that the most undervalued metropolitan area is Vero Beach, Florida, where the median price has dropped to $125,400, a drop of 29.7 percent compared to the first months of 2005. Next is Houma, Louisiana, where the median price of $113,500 represented a drop of 41.4 percent. Third most undervalued is foreclosure-battered Las Vegas, where the median price has fallen by over 46 percent since 2005 and is now under-priced by nearly 41 percent.

IHS analyzed the valuations of houses in metro areas using the three major home affordability factors, namely family income, historical prices and housing densities. Normal home values are compared to actual home prices to determine whether an area is undervalued or over-valued.

The most over-valued metro area is Atlantic City, where the median price of $243,600 is an overvaluation of more than 44 percent. Next is another New Jersey metro area, Ocean City, where the $302,100 median price is an overvaluation of 33.8 percent. The third most overvalued is Wenatchee, Washington, where the median price of $247,100 is more than 29 percent above the normal price.

In the largest metro areas, such as New York, Los Angeles and Chicago, home prices are slightly undervalued. The median price in New York City is $469,400, which is 3.3 percent below the normal level. Los Angeles, with a median price of $357,100, is undervalued by 6.6 percent. In Chicago, the median price of $220,800 is a 13.2 percent drop from normal values.

In California, among the most foreclosure-battered states, sales of bargain-priced repossession property units have been soaring, based on data from the California Association of Realtors. Inventories of repossession property units and non-foreclosures priced below $500,000 have declined to only three months’ worth of supply.

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