Fitch Says Homes Still Overvalued

Fitch Ratings said it continues to believe that nationwide home prices are overvalued by roughly 10% in real terms and 2% nominally, that is when inflation and price momentum is taken into account.

“Fitch attributes the rise in prices and sales volume, particularly in California, primarily to pent-up demand, low interest rates and low volume of new construction. Key economic indicators that underpin a robust housing recovery are not moving in sync with the rise in prices.

In Fitch's view, home price growth in many locations continues to be driven more by technical factors. However, cities that have seen prices fall below their sustainable values have fully recovered,” the rating agency said.

It added it is less optimistic than other prognosticators because of the weak employment picture in the country.

But in a separate statement, Fitch said single family U.S. housing starts posted a solid March while multifamily results were spectacular, an encouraging sign that the housing market’s moderate recovery may pick up in intensity in the coming months, according to the latest edition of its “Chalk Line” publication.

Robert Curran, managing director and lead homebuilding analyst, commented that “still-attractive home prices, low mortgage rates and a rise in nominal incomes are resulting in superior affordability and valuations.”

Echoing Fitch’s other report, he added housing is still treading in unsteady waters for numerous reasons.

“Realized demand is and will continue to be tempered by widespread negative equity, challenging mortgage qualification standards, lot shortages and excess supply due to foreclosures in certain markets,” said Curran.