Los Angeles is Southern California’s least overvalued residential real estate market while the area to the east is the third most overvalued in the nation, a market tracker said.
The study also suggests that while most of the nation’s markets “exhibit signs of overvaluation, we are not likely to see massive declines in home prices in most markets.”
Nevertheless, when housing is overvalued, renting is a better economic option, the study notes.
Housing prices in the Los Angeles, Long Beach and Glendale metro area are currently overvalued by 2.7 percent, but that figure soars to 16.7 percent in the Riverside, Ontario and San Bernardino county areas, according to Laguna Hills, Calif.-based Geo-stat Advisory.
This means that prices in these areas could fall by a like amount this year, barring any big shock to the economy, said market analyst Nima Nattagh, who prepared the report.
“I think the extent of overvaluation is not as much as some people have expected,” he said of Los Angeles. “I think it bodes well for the market.”
This also suggests that residential real estate fundamentals are still sound. “I think you still have a robust employment situation and income situation, and I think that’s holding up the market,” he said.
The situation is a little more dicey in areas east of Los Angeles, though.
Jack Kyser, vice president and chief economist at the Los Angeles County Economic Development Corp., said there was a land rush out there because of affordable prices but a lot of homes are on the market.
“A lot of investors bought second homes with the thought they would rent them out,” he said. “Their prices were running up and knocking them out of the affordable market. So maybe they will be coming back into the affordable range.”
Other markets considered pricey were the Dallas metro area, overvalued by 19.3 percent, and Pittsburgh, overvalued by 25.7 percent.
The most undervalued market is St. Louis at 28.4 percent.
The study also looked at the relationship between changes in apartment rents and housing prices. For example, from 1990 to 1999 home prices in the Los Angeles area fell by 0.3 percent and rents increased 2.1 percent.
But from 2000 to 2006, home prices rose an annual 16.9 percent and rents moved up 7.6 percent.
This growing spread suggests an overvalued housing market and that means renting is a more attractive economical option at this time, the report said.
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