IMF: U.S. Home Prices Up To 20 Percent Overvalued
Reuters’ Lesley Wroughton stumbled upon a report by the International Monetary Fund last Friday which predicted more bad times were ahead for the U.S. housing market. Wroughton wrote:
The downward spiral of U.S. housing prices still has a way to go and homes were overvalued by between 8 percent to 20 percent in the first quarter of this year, according to research by an International Monetary Fund economist published on Friday.
In his report “What goes up must come down? House price dynamics in the United States,” IMF economist Vladimir Klyuev used several economic techniques to determine by how much U.S. home prices are overvalued.
Klyuev drew from a government study of single-family home prices to conclude that values were “around 14 percent above equilibrium in the first quarter of 2008, with a plausible range of 8 to 20 percent.”
His research showed that home prices became considerably overvalued from 2001 and while the housing market has started to correct itself, there is still a long way to go…
The report also said that it is likely home prices will swing well below their equilibrium level before they start to recover.
Not exactly music to the American homeowner’s ears.
Neither was the latest Standard & Poor’s/Case Shiller home price index update.
Earlier today, Reuters’ Al Yoon reported:
Prices of U.S. single-family homes plunged at a record pace in May from a year earlier, with each of the 20 regions monitored showing annual declines for a second month, according to the Standard & Poor’s/Case Shiller home price indexes reported on Tuesday.
The S&P/Case Shiller composite index of 20 metropolitan areas fell 0.9 percent in May from April, bringing the measure down 15.8 percent from May 2007…
Regions that saw some of the largest gains during the housing boom, such as Miami and Las Vegas, were the worst performing markets in May. Miami home prices fell 3.6 percent in May from April for a 28.3 percent annual drop. In Las Vegas, prices in May slumped 2.9 percent, for a 28.4 percent decline from a year earlier.
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Sources:
“U.S. house prices overvalued by up to 20 percent: IMF paper”
Lesley Wroughton
Reuters, July 25, 2008
“Home prices fell at record pace in May: S&P”
Al Yoon
Reuters, July 29, 2008
July 30th, 2008 at 7:06 am
You mean you don’t think the “bailout” package will keep the prices artifically propped up??!
I’m not religious at all, but doesn’t anyone see the sin of pride here, with the way people used houses for everything but shelter? Status, profit, flipping. God, I hate to sound the moralist, but my feeling is that this never could have gone on pre-1970 because the country had a different morality.
Correct me if I’m wrong about this. Or do I just have an overdeveloped sense of shame?
July 30th, 2008 at 11:00 pm
Thanks for the comment Days.
“You mean you don’t think the “bailout” package will keep the prices artifically propped up??!”
I remain doubtful.
“God, I hate to sound the moralist, but my feeling is that this never could have gone on pre-1970 because the country had a different morality.”
And a Fed that didn’t lower interest rates down to 1%, creating the asset bubble formerly known as the Housing Boom.