Economists at Global Insight and National City Bank say Orange County housing is now 5.2% undervalued — yes, undervalued. That’s the first time this math shows local homes as relative bargains to broad economics since the second quarter of 2003. It’s also the largest undervaluation since the final three months of 2002.
This O.C. undervaluation contrasts to 6.1% overvaluation found for the previous quarter; 22.8% overvaluation in 2007’s first quarter; and a peak overvaluation of 35% in 2006’s second quarter. (Chart shows O.C. valuation — overvalution is above the 0% line, undervaluation is below — since 1985.) Global Insight/National City economists track home valuation nationwide by mixing pricing data with interest rate, income and other demographics data.
The undervalution fits with evidence that O.C. bargain hunters are nudging home sales up, with recent Re/Max data showing new purchase deals in the works at a two-year high. Clearly, Global Insight/National City’s new undervalued rating for O.C. is a result of falling home prices. By this math, O.C. home prices fell in the 1st quarter at a 19.7% annual rate, steepest drop in this database dating to 1985. O.C. prices are off 24.4% vs. the peak reached in 2006’s final quarter by Global Insight/National City’s count. (DataQuick has O.C. homes off 24% from its June ‘07 peak!)
Look at it this way: Global Insight/National City sees O.C. homes as the 123rd best bargain out of the 330 markets nationwide tracked. For the first quarter, the nation’s best housing bargains, by Global Insight/National City’s math, can be found in Houma, La., (33.7% undervalued) followed by Houston (33.1%) and Shreveport, La. (30.7%.) The most overvalued properties are in Atlantic City, N.J., (55.6% overvalued) followed by Bend, Ore., (49.5%) and Longview, Wash. (40.2%)
James Diffley of Global Insight says, “The large price adjustments we have seen are precisely what was required before we could begin to talk of recovery.” Adds collegaue Jeannine Cataldi: “The housing market will take some time to recover as consumers are constrained not only by tighter credit standards, but rising costs in other areas of the economy. There is also excess supply that needs to be absorbed, plus the rate of foreclosures entering the market needs to slow before housing can begin to pull out of its current downward trend.”
I guess we are at the bottom after all….
This just goes to show how stupid the “experts” can be. Unbelievable.
LOL.
LMFAO……..
……………check out how much homes were under valued from 1993 to 2003 by this metric………….
10 freakin’ years LOL
do you think this metric will show a similar trend over the next 10 years………… ? I do……
“There is also excess supply that needs to be absorbed, plus the rate of foreclosures entering the market needs to slow before housing can begin to pull out of its current downward trend”
So it will continue to downward trend according to these experts.
I think the difference this time (vs. the 90’s) is there really is “pent-up” demand…. thousands upon thousands of people that wouldn’t buy in the last 2-3 years because they thought prices were too high are now buying at 20-25 percent discounts. The perceived value is there and transactions are up.
On the other hand, this is playing out exactly like the 90’s from the standpoint that the decent houses are selling shortly after the price declines, and the only “cheap” houses that will be left for buyers during the next couple of years are going to be the “beaters”.
I lived through this last time and this is deja vu all over again…..
SOB,
then you realize plenty of nice homes in nice OC neighborhoods sold for the same price in 1988 as they did in 1998
Real estate always goes up right?
Looking at the chart, you see that we are in the same situation as 1992 Q3.
This article is a load of crap. Why would anyone believe a study that was cofunded by a bank? Of course the bank wants people to buy, they make their money off of interest!
JAKE:
NEVER BUY A HOUSE EVER!
A HOUSE IS A DEPRECIATING ASSET.
PROPERTY TAX WILL BE RAISED TO 1000% OF AV.
DEFLATION OF 1000% A YEAR IS HERE TO STAY FOR THE NEXT 1000 YEARS!!!!
Somebody check the water at National City Bank it may be laced with crack.
Check the value of National City Bank stock. It was 38 this year oh and now 5.80. That might tell you something.
You know it is quite nasty to suggest with any certainty this might be a bottom. But if you think so go over to the car dealers to see how many cars are being bought. Go to the jeweler and see the people selling gold and diamonds. And don’t forget the journalist who are doing everything they can to keep their jobs. Alls bets were supposed to be off if we had a recession. Well so all bets should be off.
It is a great time to buy a house if your a millionaire but don’t expect anything near the beach.
live in an apartment and save all yourselves from a coronary…
JAKE:
DON’T BUY NEAR THE BEACH EVER!
THE BIG ONE IS COMING!
ARIZONA WILL BE THE BEACH AFTER THAT!
If we follow the same pattern as before, the bottom won’t be here until we’re 30% undervalued. Only a 25% drop left to go!!
Propaganda from the National City Bank to fuel the underwater OC Mortgage Finance and Housing Market.
no_vas,
I completely agree it’s worse this time………
If it was like last time I think we would see 2006 prices in 2016…..
This time I think we will see 2006 prices in 2020……….
……………. all i was saying is that we are in store for a downward trend just like last time…………… and this metric will show “under valued” OC real estate for quite some time……… it’s more worth while to look at income and rent multiples than this metric…….
35% of all statistics are made up!
In all seriousness, why would the register even post this non-sense? Is it to instill a false sense of hope or security to an otherwise ignorant public?
Why don’t economists actually report on the economy? Devaluation of the dollar, Fiat currency, and its affects on housing prices. If the FED quadruples the money supply in six years, how does that effect housing prices?
Jake,
I can take and past that test. Yes, I could easily afford my house if I were buy it today (approximately $600,000 house). I could afford it even with out a down payment, which I would have. I can also say that probably all of my friends could also afford it.
I think too many times people get caught up in what they believe or what their reality might be and then think that applies to everyone else. In this case, you’re wrong. I did your test and passed.
You see folks? EVERYONE wants to live in OC. It’s always sunny; the beach is 15 minutes away; every conceivable store you could want is here; there are colleges and universities here. It’s paradise here and people will pay uber-bucks to live here. OC is one of the best markets in the nation. :)
Another Bank trying to keep out of Junk status. You have to believe that RE/MAZ data, you know Realtors never lie. Bottom Jan 2008 just like thoughtful says.
Yet more pushing back from the Renter’s Blog…Jon: please change the name of your blog to “The OC Renter’s Blog.” It is so obvious that the majority here are investing in RE for someone else.
yeah…the OC Renter’s blog, with the occasional geezer who will probably die/retire by the time they see 2006 prices again.
No vase…nice WS article there. The only aspect to that I see different here is the lack of new construction. The pace here has paled in comparison to other locales in the nation. I do not pretend to know when housing will return to 2006 levels. All I know is this: every time a price of something hits a certain benchmark, there are those prior to that threshold crossing that said it was impossible. No way GOOG goes to 500, 600, 700…and GOOG will probably never split if they stay true to their word. Housing will return to 2006 levels and beyond…when will that be? Only time and God have that answer. The rest of us are just Monday morning QB’s…except we think we know what is going to happen.
This just goes to show that Lanser is trying to keep his job.
Where does this guy get off?
Has he ever taken an economics course?
Have you ever heard of supply and demand?
Dear Mr. Lanser, - Do you know what market forces might move the prices upward again…to cause them to be currently undervalued?
How long will that take with the number of people’s whose ARMs are hitting 3 and 5 yrs? Guess how many folks will go to short sale or foreclosure at the end of June? Guess what that will do to the supply of homes?
They should really try and hire someone with at least a minimum of a high school diploma — and some economics understanding…Lanser does not have it.
ScottGinOC
Looks like the Lansner’s home was underwater and needed a boost in equity. SELL! SELL! SELL!
Even though this data comes from “expert economists in all subjects for hire”, commissioned by a lending institution … I’ll accept that they could be partially correct:
1. The graph above suggests that real costs for houses fell from ‘90 to ’97, for a total of 7 long years.
2. From the same graph, in this present ‘downturn’ we’ve only been falling for two years.
3. The rate of decline is faster this time, suggesting that we can expect worse undershoot than what we’ve ever seen before.
I disagree strongly with their arbitrary assignment of where the ‘at value’ line should be placed. This in turn leads to non-sense headlines which imply that you can buy now with safety.
I also think that the relative % run-up was much, much more severe than what they have modeled.
All in all, an interesting bit of massaged data with smiley faced assumptions.
Lets just say that bears are very interested in the market turning, though not as desperately anxious to call it as some bulls here.
“Mulliganville Says:
June 2nd, 2008 at 3:04 pm
No vase…nice WS article there. The only aspect to that I see different here is the lack of new construction. ”
Drive down the 241 sometime. There’s a bunch. When you get to the 91, go east. It’s developed suburban sprawl all the way to Indio now.
I appreciate the complement, but I don’t understand why your agreeing with it. None of the bears (who post here) are nearly as bearish as Lindsay is in that article. If my memory serves me, you are not bearish.
This blog is easy to ascertain: the bears, most of whom are renters, continue to clamor for declines as it serves their purpose very well. The bulls, most of whom are homeowners, wish for a rapid recovery to their reduced valuation of an asset. It truly is that simple.
No Vase…are we not entering another county there?
sweet mav…what other aspects of the future can you tell me about?
The Bears just won’t stop! They can’t even look at the facts! Check out the MLS and you will see activity is up for yourself! The site I was on yesterday (for the search I did between $700,000 and $1,400,000 in Irvine) showed a ton of homes in escrow. It’s that simple. We are within a 5% of the bottom! We are already at 2003 prices. If a dumb seller does not realize this and lists their house at 2006 level it will stick out in the search I mentioned. It may go into foreclosure. O well it will be bought! Have you noticed that there is hardly any building going on you the county? All the Bears want to focus on the REO’s but don’t account for the lack of building and its effect lol! The Bears need to stay in their apartment dens for life!
Well, if the experts say it is now “undervalued” then it must be so. But we will become much more “undervalued” in the near future.
Fact is that Real Estate is depreciating, still, at a very significant monthly rate.It would be stupid to buy now if you can wait another 12-24months, especially along the more upscale communities, e.g. Coast.
Just because something is considered “undervalued” today doesn’t mean that the price won’t continue to go down. And the same is true for the opposite. Home prices were overpriced, yet there was still room for more overpricing. Markets usually over correct due to the psychological element being involved. I think we will most likely over correct, but many areas in OC aren’t even close to being done with the normal correction phase - so sit patient rent another 12-24 months and then buy your home.
Well yes, OC homes are 5.5% undervalued, but unfortunately, we’re all 50% underpaid!
The rule of thumb was: never pay more than three months gross salary on a car, and three years gross salary on a house. What about now? Ten years gross salary on a house?
If you can’t put down 20% on a house, you can’t afford it.
That really puts a damper on the market.
Wake me up when prices stop going down and foreclosures stop making new records month-after-month.
Also, if you had used this chart as a market-timer in 1991 you would have ridden another 30% in losses to the true bottom and made zero $ for 12 years. Nice illiquid investment.
Unbelievable.
Until people can get loans for these “great deals” good luck selling that to the masses. Oh wait, that’s right, Joe Upper Middle Class can qualify for a $350,000 beater in Fountain Valley right now.
Note the “Clustr Map” to the right.
Alright, show of hands. Who here has never actually stepped foot in OC? rants, jake, liar loan, no vas, bubble, carlos……
OK, now , how many of you are under 20?
OK, who sits at their computer spamming blogs to stir things up for fun?
OK, now all of you go to your room. No mutton, meat pie, vegemite, menudo or World of War tonight for you!!!
I wonder how undervalued Gas is @ $4.25
How can OC homes be undervalued? I am still waiting for CdM beach prices to fall from the current level which is just shy of the all time high.
stuped banks, if it so undervalued why dont you bring the liar loan back?
VOR:
If it makes you sleep better, I live a five iron from Villa Park in Orange.
CHICKEN LITTLE
PLEASE DONT USE CAPS
CAPS ARE FOR MY USE ONLY
PLEASE RETURN YOUR KEYBOARD BACK TO MULLIGAN AND TRUTHIFULLESS
LOLLL
No Vas,
I’ll bet you live on Sacramento.
All these projections are just guesswork. I do find it funny that the bears went on relentlessly about “affordability”, but when the data suggests homes are now “affordable,” they sing a different tune. As I have always said, for most bears, their true agenda is based on their belief that they deserve a home far nicer than they can currently afford.
undervalued….!! LOL, this is almost comical
and in a few more years, they’ll be saying these homes are the best values in 10 years. big deal. I can wait, in the meantime my equity accounts grow. as others have pointed out, we still have at least another 20% to go (likely more than that when you consider the much stricter lending requirements). stupid
hey Crystal not to browbeat you, but according to whom are they suddenly affordable just because we’re at “zero”? they’re 30% less affordable than 1997 and 20% less affordable than 2001. and that’s just the list prices. on TOP of that there’s no more free money, fewer ARMs, no more interest only, no more stated income, traditional 20% down and high reserve requirements, and we’re in the middle of a recession when the middle class has no money, gas prices are killing everyone, the dollar has been dropping, and folks have just been hanging on hoping to keep their jobs. don’t you people get it yet?
Yep and here’s the tune they sing now
Born under a bad sign.
Ive been down since I began to crawl.
If it wasnt for bad luck,
I wouldnt have no luck at all.
mav @ 3:45 post of the day!
Squirty you’re gonna hyper-ventilate. Take a breath
no vas,
See you ar Rockwells for pancake sandwiches Sat morning.
This graph goes either up, up, up or down, down, down.
It’s going down now.
cyphermoron made this astute statement–
everyone wants to live in THE OC–
just for the record the earths population is
over 6 billion the OC’s population is
3 million- just a few who have chosen not
to live here– warren buffet bill gates donald trump
tiger woods I could go on but I think you
get the idea the OC is not even on the
radar screen for 99.99999% of the earths population
get over it
” think the difference this time (vs. the 90’s) is there really is “pent-up” demand…. thousands upon thousands of people that wouldn’t buy in the last 2-3 years because they thought prices were too high are now buying at 20-25 percent discounts. The perceived value is there and transactions are up.”
Using Mr. Thomas’s numbers, those “thousands upon thousands” of “pent-up buyers” look like one thousand so far — at most.
That’s assuming that the 3,700 or so average monthly sales over the past twenty years was just irrational exuberance., that 2,000 sales is the new stone-cold baseline, and that anything about 2,000 is something to celebrate.
It took until April for sales to claw back north of the 2,000 mark it sank below when the infamous credit shock struck last August. In April, 166 pent-uppers closed on houses (assuming, again, that a pathetic 2,000 monthly sales in OC is the new baseline. In May, looks like there were 2400 (based on Mr. Thomas’s numbers, and expecting a handful of escrows to fall apart.) June may get 2600. Whoop-de-frickin’-do.
June typically represents the peak for sales activity. It’s thoroughly obvious that we won’t get anywhere near the average sales total. If sales only experience their normal late-summer dropoff, and if we get a similar “spring bounce” in sales activity (though not pricing!) next year as we did in this, *maybe* we’ll crack the 3,000 level next June. Still nowhere near average.
The truth is that there simply aren’t “thousands of thousands” of “pent-up buyers” with the means to afford houses at present prices. It’s literally taken a fire sale to get as much inventory moving as has been — and we’re still well under what sales activity should be. What we have, instead, is a broken market, where prices are still too high to attract even a *normal* level of sales activity.
I think the true number of “pent-up buyers” left consists of pretty much the people posting on these boards plus forty.
Watch out for “Economists”, “Experts”, “Consultants’, Realtors, Economists, Financial Consultants, etc.
I agree home prices are very low. If you look at where prices are now we are about 70% above year 2000 levels. That is only a 5-6% per year increase….historically about normal. The 15-20% year over year got erased
NoVas
Ah Benjies. Just there last week with my son. Not a lox fan, but the food is excellent. Also, the Huevos Rancheros at Arthur’s is muy bueno.
Let’s not forget the last cyle started when only 17% could afford the median priced home, this cycle began when 8% could afford the median. The cycle ended when 42% could afford the median and it rose to 60% as rates dropped. In otherwords, we’re now at the point where the other cycle began! Factor in the high-end sales volume is still way off which means today’s median is not being pulled upwards by a large number of high-end sales. Still another 18 to24 months before we see the bottom.
# Crystal Balls Says:
__ ” I do find it funny that the bears went on relentlessly about “affordability”, but when the data suggests homes are now “affordable,” they sing a different tune. As I have always said, for most bears, their true agenda is based on their belief that they deserve a home far nicer than they can currently afford.”
–
Well, duh !
Interesting part of your post, “As I have always said….” — what you forgot was you’ve only said this while posting under one of your other names:) In fact you’ve continually said this in a ‘thoughful’ way, and it sounded as foolish then as it does now.
However, it is good to see you recognize that this whole thing is, and always was, about affordability.
“their belief that they deserve a home far nicer than they can currently afford.”
Uuhhh, crystal balls, were you talking about the people that bought in recent years? You know, the people that are now facing foreclosures and blaming the banks for their mistakes…. the people that are begging the government for a hand out? You know, the people who believed they deserve a home far nicer than they can afford, because surely, real estate always go up ….
pdu … that “thoughtless” guy is a joke, obviously using multiple aliases. There’s a loser like him on every message board.
I love the absolute allegiance of some here to two of the most obvious, yet vague principles in the world: “affordability” and the ancillary “fundamentals”.
Of course everything that involves a purchase of any kind depends on the ability to pay for the item, whatever it is. This is so elementary that it should go unmentioned. But some of the bears want to beat on it like a drum, like it’s somehow beyond the comprehension of mortal men. A Bentley Continental costs what, $300k. Therefore most people can’t “afford” it. Wow, what a revelation!! Of course, if they would finance it for 50 years at 0% interest, then many more could afford it. So “affordability” is a basic concept that depends completely on the details.
“Fundamentals” is just another way of saying the same thing. It is more specific and involves comparisons to other financial factors, but it’s the same simple concept that needs specifics to mean anything to the argument.
We’ve had this discussion before. It is not JUST the price of the home that determines “affordability”.
So please, if you are going to use these terms, elaborate further. Otherwise, it means nothing.
Oh, thanks for the lesson.
Good to see you realize this whole real estate adjustment is just that simple and inevitable.
Prices went beyond affordability and we’re seeing a return to fundamentals.
I guess the actual concept behind the term is hard for some to comprehend, but………
You’re welcome.
I don’t know
VOR,
As you said: “This is so elementary that it should go unmentioned.”
Understood by nearly all, as shown by the real estate market today. You are the one trying to make it seem complex, it seems.
with prices dropping and sales volume picking up, the big question is:
How much sales volume is needed in order for prices to stop going down?
Prices continue to fall.
Where’s the ‘bailout’ plan? Like i said before, George W. will not come to save you. Just ask the good people of New Orleans.
What has happened to the billions of bucks poured into the Big Easy? Down the tubes. What did you expect? The politicians down there thank you very much. Oh by the way, send more money!
NO JOB. NO HOUSE. NO MONEY. NO HONEY.
Undervalued? Did everyone in OC recently get a 200% salary raise that I missed? A house is not worth one penny more than some is willing to pay (or a now-nervous banking industry is willing to lend).
With so many “deals” in OC, I’m surprised Realtors(c) don’t buy them all themselves. They won’t even have to pay themselves commission.