Pittsburgh market impacts second homes

We think this recent post on the PAR blog reflects a REAL impact on this market. The fact the Pittsburgh is undervalued by over 12% also impacts the buyers perception on the value of second homes here. We are seeing a consistant declining in values depending on the resort and community.

Wednesday, March 3, 2010

By Austin Jaffe, Ph.D.

In 2006, a research study by National City Corp. and IHS Global Insight ranked U.S. housing markets on whether or not median home prices in 299 markets were “priced correctly.”house_on_rolled_bills

They found that 213 of the 299 cities selected for the study were over-valued. Number one on the over-valued list was Naples, FL, with a whopping 84 percent of its housing stock selling for more than what was thought to be the “correct” price or fair value. The 2010 follow-up study found that housing in Naples now sells at a 29-percent discount to fair value. Median prices fell from more than $390,000 to about $165,500.

By 2010, only 87 of 330 cities studied were over-valued. The most under-valued market in the 2010 study was Las Vegas at 41 percent below fair value, followed by Vero Beach, FL, down almost 40 percent; Merced, CA, down nearly 38 percent; and Cape Coral, FL, down almost 37 percent.

How do Pennsylvania cities compare? Here are the numbers:

jaffe_home_valuesAll Pennsylvania cities show evidence of relative price declines from their fair value estimates from 2006 to 2010, except Harrisburg, which extended its over-valuation, and Scranton, which is about the same.

The primary implication of these numbers is that the median prices in the overvalued cities may decline further while the undervalued set (except Pittsburgh) overshot their fair values during the recent years’ declines. The Steel City was slightly undervalued in 2006 and is even more so now.

It is important to note that it is quite possible for over- or under-valuations to persist for some time. Economics and other forces exert pressure on prices to “revert to the mean” but this process may take several months — or even years.

The conclusion of the report observed that for a few years, the average buyer “should forget about home purchases as investments.” But homebuyers, especially in under-valued markets, can expect long-term appreciation as prices approach fair values.

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