In Which Cities Are Homes Overvalued And Why?

Despite the hardships that the housing market has endured over the last couple of years or so

, house costs have remained more or less the same. Certain government incentives to help prop up the market have helped to stave off massive drops, with schemes such as the first time home buyer tax credit providing a boost to home sales.

Overall it's likely that, the demand for home purchases could reduce, which in turn has the apparent result of decreasing the monetary value of homes.

There are other causes for homes being valued at a higher price than what they're actually worth. For example, San Diego is a city which is attractive to many due to its outdoor lifestyle and wonderful weather. Because of this homes tend to be sold for more money than is relative to the income levels that could be found in such a city. Alternatively a city like Detroit, that isn't considered to be particularly glamorous, has homes that would sell for less than their actual value since it is not such an attractive place to live.

This pattern would be seen in the entire the housing market as a whole where a lot of the reasons involved in purchasing a house are psychological rather than taking into account the true suitability and affordability.

Of course, the local economy, does have an effect and the most notable indicator of this is Las Vegas. The very nature of the city as a gambling and entertainment Mecca, where people go to spend spend spend, meant that it was hit hard by the recession. This lead to several jobs being lost in the region and house prices have fallen accordingly. The thing with Las Vegas is that while many would choose to move to a city like San Diego on a permanent basis, Las Vegas is more for those wanting to enjoy a holiday with no intention of staying long term. With no jobs and little other reason to stay, the housing market fell drastically leaving it the most undervalued market in the country and homes sell at 41.4 percent below what's considered to be the fair market price.

The actual value of a house is calculated by taking into account median home prices, local interest rates, population densities and income, and historical premiums or discounts that areas have displayed over time.

With mortgage delinquencies presently at an all time high, the market might be poised to see a decline in prices with some estimates ranging from 8%, to 20% in some regions. These drops might be fuelled even by lenders now being much stricter regarding who they give mortgages to and how much. With fewer loans being granted and at lower values, the housing market is sure to see a decline at some point.

by: Cory Boatright

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