A leading real-estate firm says houses are cheap – relatively speaking – in the Providence region.
Home prices in the Providence-New Bedford-Fall River metropolitan area are 13% undervalued relative to the economic fundamentals of the region, significantly more than the 7% undervaluation nationwide and 8% undervaluation in Boston, according to an analysis by Trulia, the real-estate data firm.
Jed Kolko, Trulia’s chief economist, explained the methodology in a blog post:
[W]e assess whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. Incomes determine how much people can pay for housing, and price increases aren’t sustainable if they push prices too high relative to incomes. Rents reflect how much people value housing even if they won’t benefit from price appreciation (as renters don’t, but owners do); the price-to-rent ratio is like the price-earnings (P/E) ratio for stocks. Using data from multiple sources … we create several measures of fundamental value and combine them in order to calculate how overvalued or undervalued home prices are relative to fundamentals.
Home prices in the Providence area have fallen a long way since the height of the housing bubble: Trulia estimates prices were 51% overvalued during the middle of the 2000s, while they were 39% overvalued nationwide. (The Providence metro area encompasses all of Rhode Island plus Bristol County, Mass.)
Housing prices are below their fundamental value in 91 of the nation’s 100 largest metro areas, including Providence, according to Trulia. The only places where homes are estimated to be overvalued are in California, Texas, Oregon and Hawaii.
There aren’t exactly a flood of new people arriving in the area to snap up those supposedly cheap houses.
Trulia reports Providence was the sixth-slowest-growing major metropolitan area in the U.S. last year, eking out a population uptick of 0.1%, compared with 3% in fastest-growing Austin, Texas. Providence also has some of the oldest housing stock in the country: 6.6% of the homes for sale in March were built before 1900.
• Related: Study: Cost-of-living in Providence 23% above national average (Feb. 20)