Delaware home prices slide again

Nationwide studies suggest market hasn't hit bottom yet
By LESLIE A. PAPPAS, The News Journal

Posted Thursday, March 6, 2008
Houses in Delaware may still be overvalued despite two consecutive quarters of falling home prices, a new study shows.

The First State did not see as much of a run-up in home prices as many other states, however, and may not have as far to fall.

Home prices across most of the U.S. fell for a second straight quarter at the end of last year, and may be reaching more realistic levels, several recent studies show. According to one report, prices for homes in both Wilmington and Dover declined in the fourth quarter, and homes in Dover may remain overvalued.

"The decline in home values occurred in every region in the U.S.," said Amy Crews Cutts, deputy chief economist for Freddie Mac, upon the release of the corporation's quarterly Conventional Mortgage Home Price Index on Tuesday. "Only four states posted gains in home values during the fourth quarter: Maine, North Dakota, South Dakota and West Virginia."

Freddie Mac's index showed a 0.5 percent drop in U.S. home values during the fourth quarter of 2007, following a 1.5 percent drop in the third quarter, the first consecutive quarters of decline since 1982.

Last week, an analysis by the Office of Federal Housing Enterprise Oversight found home prices slid 1.3 percent in the fourth quarter after dropping 0.34 percent the quarter before.

"Prices for home purchases in the quarter fell in every state except Maine," OFHEO Director James B. Lockhart said in a statement when the federal agency's purchase-only price index was released Feb. 26.

"The market still needs to work through its ... unsold inventory," the housing office's chief economist, Patrick Lawler, said. "How much further down that inventory will ultimately push prices will depend on a number of factors, including what happens to interest rates and the overall health of the U.S. economy."

And "House Prices in America," a study by economic research firm Global Insight and financial holding company National City Corp., found that median home prices in the fourth quarter fell in 291 of 330 metropolitan areas, bringing prices in some overvalued markets down to more natural levels. The 291 metro areas experiencing price declines accounted for 95 percent of all housing units and 97 percent of real estate value examined in the research, the study said.

The survey identified 21 metro areas as severely overvalued, down from a peak of 58 areas in 2006. The quarterly update attempts to calculate what home prices should be in 330 top U.S real estate markets -- considering population density, interest rates, relative income levels and intangible factors like climate and school districts -- and compares them to what current prices actually are.

Homes overvalued by more than 32 percent are considered "extremely overvalued" and at risk of price declines of 10 percent or more; areas with valuations of plus or minus 15 percent are considered fairly valued.

Washington, D.C., for example, was considered "extremely overvalued" in the third quarter, with its median home price of $429,100 deemed to be 36.1 percent above what it should be. After median prices in the area fell more than 8 percent last quarter to $390,700, Washington is now considered to be 23.1 percent overvalued.

Median home prices in both Wilmington and Dover fell in the fourth quarter.

Dover saw median home prices fall from $194,700 in the third quarter to $189,600 in the fourth. Wilmington saw its median home prices fall from $248,700 in the third quarter to $244,400 at the end of the fourth.

"Along with the tighter credit market, weakness in overall economic conditions will keep housing below historical trends for the near future," Jeannine Cataldi, senior economist and manager of the Global Insight Regional Real Estate Service, said in a statement.

HIGHS AND LOWS


How other areas stack up -- rank, location, median home price and estimated over- and undervaluation in select metropolitan areas:


1. Bend, Ore.: $308,100; 59.8 percent


35. Dover: $189,500; 27 percent


47. Washington, D.C.: $390,700; 23.1 percent


58. Baltimore, Md.: $293,400; 19.8 percent


133. Wilmington: $244,400; 8.7 percent


137. Philadelphia: $237,000; 7.8 percent


330. Houma, La.: $116,500; -31.2 percent


Source: Global Insight/National City Corp., "House Prices in America: 4th Quarter 2007 Update"