Here is yet another analysis of how over-valued various housing markets have become (warning -- PDF) conducted by Global Insight and National City Corporation. The authors' analysis is based on a quantitative model that attempts to determine what "fair value" is for a market based on fundamental factors. The document contains a lot of good info. The link was sent to me by a reader from this investment consulting company (which also has on-line articles that discuss the housing markets and which are worth checking out IMO).Some choice quotes:
If home prices are overvalued then, by definition, the risk of a price correction is high. In the event that such a correction plays out with home prices falling broadly, adverse implications abound.Here is a list of selected markets showing their percent over-valued estimates for Q3 2005 (from the appendix):
Our approach to determining fair value in the housing market is statistical in orientation. This contrasts with financial asset valuation, where a vast body of theoretical and empirical literature addresses the question of “intrinsic value.” Rather, our approach examines a particular historical period — 1985 to 2005 — and accepts that house prices, on average, adhered to some normal relationship to underlying determinants during that time.
Napa, CA +65%Interestingly, 80% of the top ten most over-valued markets are in California and of the top 20, 65% are in California.
Oakland, CA +47%
Salinas, CA +75%
San Francisco, CA +35%
San Jose, CA +44%
Santa Cruz, CA +44%
Santa Barbara, CA +70%
Santa Rosa, CA +56%
Vallejo, CA +53%
1 comment:
kudos to the warning on the pdf. I hate them too. I worked for macr and was laid off by adobe. adobe knows the pdf is slow ( bruce, the ceo joked about it in a company meeting before they axed all the macr employees ). hopefully the macr engineers can speed it up.
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