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Las Vegas Homes Undervalued

A report called House Prices in America, put out by IHS Global Insight, a forecasting company located in Massachusetts, and National City Corp., an Ohio bank holder, shows that homes in Las Vegas fell 18.8 percent below what market fundamentals would justify in the third quarter of 2008. Six months ago home prices were found to be 3.1 percent below value. Out of the 330 markets the instititutions track, Las Vegas ranks 287. To determine normal values, median prices from 2000, household income, population density and interest rates are taken into account. It really isn’t a surprise that values have fallen so much. It’s common for markets that experience steep overvaluation to experience similar downturns. Las Vegas real estate prices peaked in the third quarter of 2006 at 30.8 percent above market fundamentals. As we well know here, inflated markets encourage overbuilding and speculative investments. Overbuilding and overextended investors formed a glut on the market which was exacerbated by the thousands of foreclosures.

I have found that if you take the price of a house in 2000 and add three to four percent annual appreciation, the average traditional rate of appreciation for a home, the number will be about today’s median value. This statistical approach supports the idea that Las Vegas real prices are approaching the bottom of the market.

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