United States homes are now undervalued economists say. Property prices have fallen by a third since the market peaked in 2006. In nominal terms, property values are back to where they were in 2002, but in real terms (after inflation is factored in), they are back to where they were in 2000. This means six years of heady gains have been wiped out in three years of massive falls.
US homes are now undervalued by one-fifth according to the house price-to-disposable income ratio. Three years ago, they were 35 per cent overvalued, so quite a turnaround. Another indicator, the house price-to-rent ratio, shows sales prices are 9 per cent below “fair value” consultancy, Capital Economics, says. Unfortunately, this does not mean prices are set to rise. On the contrary, they will fall another 5 – 10 per cent the consultancy forecasts, possibly more if growing unemployment means wage cuts for those still in work.
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