Our local newspapaer ran an article with data from PMI Group (www.pmigroup.com), a Kolyfonia company that issues PMI for loans all over the country. They have a keen interest in knowing the values of the properties they are backing with PMI, and to keep track of them they created a statistical model to show when properties are bid up above their real value. Here is what they found in various markets:
LA 33.7% over-valued
San Diego 22.3% OV
Las vegas 25.5% OV
Phoenix 22% OV
DC 18.2% OV
NYC 20.4% OV
Miami 20.5% OV
Tampa 23.2% OV
In most of these hot markets they see a 25%-50% chance for a decline in valuation in the next 24 months. Some markets are under-valued:
Indianapolis 2% UV
Memphis 6% UV
Cleveland 6.4% UV
So much for the politicians and bank officials who are telling us there is no real estate bubble, and everything is just peachy. Look for real estate agents to start steering asking prices lower. The good ones know it’s not smart to try to catch a falling knife.
Replies
Then I am glad escrow closes next place for the family house at the beach in Los Angeles.
Over valued how?
If I'm selling and you're buying, the price is right.
If I'm selling and no one is buying, it's over valued.
Joe H
It's common knowledge that appraisals are biased to make mortgage and refi deals "work". Appraisers who kill deals don't get hired again -- it's that simple. Over the years that bias pushed up prices for new homes and resales because the comps were systematically over valued. Add to that the lax lending standards (down payment, what's that?) and the creative loan packages and IMO you have a Twilight Zone situation in the mortgage markets. Yes, it's still a buyer's choice to accept the asking price, but the underlying reasons for setting that price are skewed toward higher numbers. Do you honestly think people in LA would be making offers at today's prices if interest-only or negative amortization financing weren't available, or if appraisers didn't rubber stamp valuations?
Appraisers don't set prices. Prices are set by what people pay for the houses.
I think "overvalued" is the wrong word. It's obviously not overvalued if people are offering that much - the reason asking prices are met is because demand currently exceeds supply.
Yeah, over-valued is only a meaningful term to someone who bought recently for too much and in a few years can't sell for what they paid. I'm not sure if our house is over-valued or not--it'll depend on what we get for it when we sell, which could be in 2 years or in 20.