Naples Real Estate Overvalued
You just have to believe everything that is published on the Internet! Even if it potentially has flaws within it. Naples Florida real estate may not be overvalued as the title of this article implies.
On June 16, a staff writer for CNNMoney.com released an article Overheated Housing Markets Cool Down and reflects that the Naples real estate market is overvalued by 63.4%. The source of the data comes from National City Corp and Global Insight.
The article identifies, according to National City Corp’s and Global Insight’s methodology, real estate markets across the country are either overvalued or undervalued accordingly to the following criteria: house prices, household income, household population density, and interest rates.
The data used for the study is for single family homes only, but the author refers to homes through-out the article – homes could be condominiums, as well. This can be highly misleading to a reader, if they do not review the methodology used to determine the final reported data.
In reviewing the methodology, one does note the following: “Specifically, our model has a standard deviation in house price valuations of +/- 14 percent, meaning that any valuation between 14 percent overvalued and 14 percent undervalued should be considered statistically normal.” That is quite a statement!
Where one has to dig a little deeper is the data used for household income. The income figures for an area are derived from the Bureau of Economic Analysis’ personal income by state, divided by the number of households as per the Bureau of Census. The Bureau of Census defines personal income as “Personal income is the income received by all persons from all sources. Personal income is the sum of net earnings by place of residence; dividends, interest, and rental income (property income) of persons; and personal current transfer receipts.” (Note: bold, underline and italics have been added for emphasis.)
A possible flaw in methodology does not account for single family homes purchased by people for vacation, second homes, or future retirement where the purchaser’s income is derived from a place of residence outside of the local real estate market, as well as, personal income of foreign nationals that purchase property in an area, for example, in the Miami area, where there could be concentration of Central and South American purchasers.
Potential second flaw is not allocating income between single family home owners, condominium owners or renters. Depending upon the real estate market the composition of property owners and renters may not be the same, thereby, causing a possible distortion of the income used within the methodology. With higher levels of condominium owners and renters, an area’s household income maybe lowered not using the proper factors for allocation.
A third flaw in the analysis might be in cases where individuals have gained significant equity from a home in another area, and purchase another residence for cash. In the Collier County (Naples) area approximately 18.7% of the residences have no mortgage. This results in a home being purchased for x dollars, with no mortgage and the personal income still out of area. Or a retiree sells their primary residence in another area and due to the appreciation associated with the home are able to purchases a more expensive home here. This would distort the income needed to purchase a home of such value.
In summary, metro areas reported by National City Corp and Global Insight may not be as accurately overvalued or undervalued as the reader of CNNMoney.com maybe lead to believe, without delving deeper into the detail making up the end results. This could lead people to make improper decisions about buying or selling real estate in a metro area. Everything you read on the Internet may not be as accurate as you would believe. Do your research or consult with a local expert before making a decision.
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I would be shocked to see a well research article appear in a popular media outlet any more. Its always geared more towards shock value then actual in depth analysis.
Yes, I would like to see the media outlets do more in-depth research to insure the articles they quote are in fact presenting fact or just “shock value.”