Friday, August 19, 2005

'Extremely Overvalued'

National City Corp., one of the nation's largest financial holding companies, said today that a new economic analysis has found "31 Percent of the Housing Market 'Extremely Overvalued.'"
"If home prices are overvalued, then, by definition, the risk of a price correction is high. To the extent that economic growth remains strong, however, these risks will be greatly reduced," said Richard DeKaser, chief economist of National City Corporation. "Given the obvious importance of this issue to the nation's economy, and the absence of any consensus regarding the question of housing market valuation, this report describes our efforts - and findings - along those lines."
MarketWatch said in its story on the analysis that "a strong outlook for the economy, historically low mortgage rates and a fragmented market should prevent a nationwide crash in home prices."
"The most likely scenario we see over the next year is a moderation of price growth, especially in the hottest markets, which would diffuse some of the price pressure in housing," said Richard DeKaser, chief economist at National City, during a conference call.
Of course this contradicts the anaysis of other banks, including a study reported today in the Canadian newspaper The Globe and Mail. That story said much of the U.S. economic growth is real estate-based consumer wealth, and that even a leveling in the real estate market could send the entire economy for a tumble.