Florida Retirement Buzz

A national study that rates the degree to which home prices are overvalued, undervalued, or fairly valued appeared in Smart Money recently. The ratings for Florida cities are shown in the accompanying table. Only Tallahassee was rated as being “fairly valued”. These ratings are arrived at by comparing the increases in home prices against local wages. When home prices rise faster than wages, real estate becomes overvalued; when incomes rise faster, it’s undervalued. When incomes and real estate rise at similar rates, the market is adjudged to be fairly valued. Florida and California accounted for 24 of the top 25 overvalued spots in this year’s survey!:

How do you make use of this information? The author (Ingo Winzer) of this study feels that any market that is overvalued by 30% or more is due for a correction. A correction has already been underway for some time in most areas of Florida. If you are going to be bidding on properties in any of these markets, you must make every effort to ascertain what the current, local price trend is. Also, the “days on the market before properties have sold” is a useful market parameter. In these highly overvalued markets, the author recommends considering making offers at least 20% below the asking price even if your agent thinks it’s ridiculous. The response from the seller will give you a more reliable indication of what the market is like in that area. This is a changing situation and you need to do your best not to get caught buying high in a falling market.

In 2005, home prices appreciated 12 percent nationally. This year the National Association of Realtors expects appreciation to reach just 2.8 percent; the lowest gain since 1992 and lower than the expected inflation rate.