The housing bubble lives on?
That's one of the disturbing possibilities raised by a thought-provoking MIT study that's fresh off the presses, so to speak.
By one key measure, the U.S. real estate market remains significantly overvalued, despite years of price declines, with home values 15 percent above their long-term historical average, according to a report posted on the MIT Center for Real Estate's website.
This result comes when the price increases generated during the bubble years are taken out of the equation and the current market is compared to the norm set between 1977 and 2002, according to economists Gleb Nechayev of CBRE Econometric Advisers and MIT's William Wheaton.
Under this measure, half of all major US markets remain overvalued, in some cases, dramatically so. Metro areas where prices are still a quarter to a third higher than historic norms include Miami, Richmond, Tampa, Washington as well as its Maryland suburbs and Baltimore.
For whatever quirky reason, the Boston area is not listed, though the Providence/New Bedford market is still considered 6.4 percent out of whack.
That said, the study includes a major twist. If the price increases seen during the bubble years are included in the historic average - as I noted above, they were not in the first set of figures - well then things don't look so messed up after all.
Excluding the bubble years, prices have risen, on average, about .5 percent on top of inflation. If you include the outsized returns posted during the bubble years, well then you get an average annual markup of 1.3 percent.
When bubble year pricing is factored in, the U.S. market actually turns out to be undervalued by historic trends by 4.3 percent. The same is true of several metro markets as well.
I think a strong case can be made to treat those bubble year price increases as a major aberration, with an almost complete breakdown in lending standards. In that case, home prices still have a long way to go before they reach historically normal levels.
But then again, it's all based on which set of numbers you look at.
So go figure.
