Property Overvaluation Partly Drove Miami Foreclosures

by Donald Hanz on cities

The overvaluation of homes during the real estate boom has been one of the chief reasons for the staggering numbers of Miami foreclosures, according to a report on real estate values by IHS Global Insight.

IHS analysts said that home prices in overvalued markets, such as Miami, fell by an average of almost 37 percent between the year 2005 and the final quarter of 2009.

Economist Jeannine Cataldi, who also heads the regional real estate services group of IHS Global, said that despite the subsequent devaluation of properties in 2009, buyers continued to buy properties at overinflated prices.

In the final quarter of 2005, considered by many analysts as the peak of the housing boom, there were 52 housing markets cited by IHS as extremely overvalued and another 85 markets were substantially overvalued.

When the housing market nationwide collapsed, states and cities where there was significant overvaluation of residential and commercial properties during the boom became battered by foreclosures. Record numbers of foreclosures for sale in Florida arose because Florida, along with California, was extremely overvalued.

Of the 52 markets considered by IHS as extremely overvalued, 36 are situated in Florida and California. Miami, where home prices have dropped by almost 36 percent since the final quarter of 2005, was ranked third in the IHS list of overvalued metropolitan areas.

As a result, record numbers of Miami foreclosures were posted. Residential properties in Miami were overvalued by a staggering 49.4 percent during the boom.

At the peak of the housing boom, the average price for a single-family house in the Miami area was $281,300. In the final quarter of last year, the average price has plunged to only $180,500, a steep dive of almost 36 percent.

As of the end of 2009, there were no more extremely overvalued housing markets as both residential and commercial property values plunged. Most real estate markets now throughout the country are slightly undervalued.

According to officials of the Federal Housing Finance Agency, home prices dropped by only 0.1 percent in the final quarter of 2009 compared to price levels in the third quarter, indicating that the residential real estate market is nearing stabilization.

The sales price median for single-family homes in Miami in February was still low at $191,100, which marked a two-percent fall from the median in February 2009. If Miami foreclosures continue to enter the market, the average and median home prices would still hover below the $200,000 price level.

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