OVER-VALUED: Merced, California (by 77 percent), Salinas, California (75 percent), and Port St. Lucie, Florida (72 percent).
UNDER-VALUED: College Station (-23 percent), El Paso (-18 percent), and Killeen (-16 percent), all in Texas. The report said Texas dominated the discounted markets list with nine of the 10 most undervalued housing markets. Montgomery, Alabama was also there.
keep in mind that the report does not factor the approx 3% property taxes which is why you see texas cities dominate the undervalue list. factoring the 3% taxes makes the cities in texas a lot less undervalue then it appears.
I think that’s a good point. Our tax rates are higher, but we don’t have a state income tax. Either way, they’re a write-off. I wonder if they left it out because they thought the other datapoints would be more valid and uniform.
Says, “National City arrives at its estimates of what the typical house in these markets should cost by examining the town’s population densities, local interest rates, and income levels. It also factors in historical premiums and discounts for each area.”
I am in el paso tx and a newbie here. I am not sure what that means to me…Would it be better to buy and hold or fix and flip? It seems that inventory is low here. I have been looking to fix and flip something but the few that are on the market are high, at least for the area. Any suggestions?
Angela
value is a relative thing, but many times people like to refer to it in absolute terms. the value of a particular property is only valid if one knows the underlying assumptions of the transaction/valuation (i.e. distressed seller, buyer for personal use, rehab, foreclosure, etc).
from an REI prespective, its really about what one is trying to accomplish with the investment. For examples, in past years, I have focused on buying good solid properties here in Calif that perhaps needed some work. I have been ablke to find many “good values” from older sellers, absentee landlords, etc. Now my personal situation/interest has changed and I’m looking for more cash flow. Now, the Calif market looks “overvalued” since the purchase price vs. rent is too high. Therefore, I’m investing in a rural area on the East Coast where am I from. This areas have lower appreciation, but excellent rent multiples. Its a “good value” to me.
In the end, one needs to know the histroy in a market as well as some idea of what might drive the RE market one way or another (i.e. people moving in, companies clsoing down, etc). List calculated by computers in some distant news office have little bearing on the activity on the street and represent a “rear-view mirror” investing methodlogy. The best thing a person can do (IMHO) is read the newpapers/magazines constantly, etc , talk to as many people as possible and understnad what is going on around you; plus always be looking at properties and understand the trends as they take place.
That’s my 2.8 cents worth (things are expensive here in Calif)
It’s seems like El Paso is considered “undervalued”. Sounds like you can have some appreciation opportunities for a longterm hold, but you’d have to evaluate your market regardless of what these studies and magazines say.
The best bet is to watch your market, network, ask questions, and work with an agent or someone who can provide market values to you.
AAK has it exactly right in my opinion. Terms are thrown around the media or on message boards some times that are ambiguous. I think alot of media pudnits use jargon like ‘over valued’ ‘inventory’, etc. to appear more insightful than they are. CNN, MSNBC, etc. love to publish online ‘articles’ of say 150 words that is supposed to be profound or insightful. I’m sorry, but there is just no way you’re going to rehash the same information in 150 words that’s going to be anything other than an article that, after reading, you would say something other than ‘yeah, so, what’s your point?’. They use jargon to appear to be offering more information than they are. It’s the same story over and over.
Value, in terms of whether a market is over valued or under valued, is only a function of rents. Texas is widely considered one of the most under valued markets because rent multiples exceed the PITI of a house. You can find ‘instant cash flow’ deals here all day. Under valued does not mean that houses cost less than they should. Houses always cost what they should. Because the ‘should’ in all instances is what people are paying. It doesn’t always make sense why people pay what they pay for houses, but ultimately if the market bears it, then it’s the right price.
Don’t confuse Value with Price. They are functions of two different things.
People make it more complicated than it is. Price is always a function of demand and supply. Since real estate isn’t something that you can quickly change supply - it’s almost entirely demand driven. If people pay $500k for a 2 bedroom house in San Francisco. Then it’s worth $500k, no matter what I may personally think. The opposite is true. If people pay $50k for a 2 bedroom in south Dallas, then it’s worth $50k no matter what I personally think.
To quote the head coach of the Dallas Cowboys (Bill Parcells) when asked if they are better than their record indicated. He simply said - ‘If your record is 5-11, then you’re a 5-11 team’. You are what you are.