Saturday, June 13, 2009

Investor Report: Undervalued Property

by Kenneth R. Harney

One of the keys to successful real estate investing has always been to buy undervalued property -- and avoid anything that's way overpriced.

Well, now a new study from the international consulting group IHS Global Insight has identified dozens of undervalued metropolitan markets - where household incomes, employment, population density and other factors - could support higher housing prices, but just aren't doing it at the moment.

Some of the most undervalued markets as of the first quarter of 2009, according to the new study, are formerly high-flying boom-era cities where prices soared and then crashed. They include:

  • Vero Beach, Florida, where prices are now 42.5percent below where they “should” be based on the underlying economics. You may recall that a few weeks ago, Realty Times reported on a New York investor, Larry Kestin of Glenmont Capital, who bought a mixed package of new houses and developed lots in Vero Beach for just under $9 million.

    At the height of the boom, that same real estate was appraised at $100 million, according to Kestin. So he came away with a bargain basement deal of about nine cents on the dollar in Vero Beach.

  • Also on the “most undervalued” list - Las Vegas, where today's $140,000 median house price is down drastically from the $290.000 median of the first quarter of 2006. Global Insight puts Las Vegas's overall market undervaluation today at 40.9 percent.

  • Then there's Fort Myers/Cape Coral, Florida. Once the hottest spot in the country during the boom for investors snapping up condos, Ft. Myers today is the foreclosure capital of the state. Its $119,000 median price in the first quarter contrasts with the $245,000 median just three years ago.

  • Naples Florida, just down the west cost from Ft. Myers, is rated 33 percent undervalued by Global Insight. Its current $200,000 median price is about half of what it was in 2006 -- $392,000.

  • Reno, Nevada is rated 26 percent undervalued based on its underlying economic fundamentals. Today's median is $179,000 compared with a roaring $324,500 three years ago.

  • Finally, San Francisco, believe it or not, is on sale - undervalued by 25 percent, according to Global Insight researchers. Back in 2006, the median house price in San Francisco topped $811,000. Today it's “just” $578,000.

    Now, not all undervalued markets are boom to bust, high-volatility sorts of places.

    High on Global Insight's list are two big markets that in recent years missed the wild appreciation of the boom, and have only experienced modest price deflation: Houston, which is 36.9 percent undervalued -- and Dallas, where median prices are about 32 percent below what the market fundamentals could actually support.

Published: June 12, 2009

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