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South County resale homes selling for less than fair value

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POSTED January 13, 2012 1:28 a.m.

Is the South County housing undervalued when it comes to fair market price?

The answer - without a doubt - is yes.

That is why investors in 2011 snapped up the lion’s share of the 1,100 plus resale homes that sold in Manteca, Lathrop, and Ripon.

Simply basing it in the cost of replacement housing on square footage alone - including fees needed to pay for new home services such as connecting to the water and sewer systems - a typical Manteca resale home that closes escrow is at least 35 percent undervalued.

Given that the median resale home price has plummeted almost 60 percent since 2006, it makes buying a home today a smart move based just on value alone.

University of California at Los Angeles economists have predicted double digit gains in home values throughout the state by 2015 based on much of California’s housing stock being undervalued.

What is holding it back now obviously is the economy and the “housing glut” which isn’t as straight forward as it seems.

First, 2011 is expected to have ended with more than 220 new homes sold in Manteca. That segment of the market was not likely to buy a resale or foreclosed home.

Then there is the shadow inventory of homes that should be moving along in the foreclosure process but aren’t for a variety of reasons. Toss in tight lending rules and it is why prices aren’t bouncing back - yet.

Nationally, federal data shows some of the same issues. There is the added caveat that 300,000 homes in the United States each year are demolished or destroyed by a disaster. In short, the abundant stock of unsold homes is dropping slowly but surely.

Manteca isn’t the only city where homes are selling for under what should be their true fair value.

According to Goldman Sachs Chicago is 12.2 percent under fair value, Dallas 18.2 percent, and Las Vegas a whopping 50.4 percent.

On the other end up the spectrum, New York City is 26.1 percent overvalued in terms of fair market price and Los Angeles - despite sluggish prices - is 24.6 percent overvalued relative to fair value.

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