Forbes: Most undervalued Markets Lists Detroit Michigan as #1

Posted on July 31, 2017

This is the second in a two-part series on the metropolitan areas that offer the best and worst values for home buyers. Click here for the most overvalued markets.

Looking for a deal on a home, and hunting nationwide? There are two very different ways to play it, exemplified by two very different cities. If you’re short on money but long on time consider Detroit. Housing is cheap in the Motor City and recovery is always just beyond the horizon. Meanwhile, economic fundamentals suggest home prices in the New York area have room to grow–but affordable they are not.

The CoreLogic Case-Shiller Home Price Index for Detroit gained 6.52% between the first quarters of 2016 and 2017, but remains among the lowest in the country. As a result, Detroit homes are undervalued by 11.7%, the most of any market in America, according to Fitch Ratings.

The New York metropolitan area is undervalued by 10.4%, says Fitch. Home prices in the region, already some of the highest in the country, grew 5.3% year-over-year. However, New York incomes are high and growing–as are rents–making ownership relatively more attractive.

New York and Detroit are not alone. Fitch deems 28% of the 412 housing markets it tracks undervalued, with home prices at least 5% below fair local value.

The five most undervalued places Fitch highlighted for FORBES are a diverse bunch, but all are located in the Northeast or Midwest.

Homeowners considering a sale in these markets might want to wait for prices to rebound to fair value, but there’s no predicting how long that might take. Fitch contends that markets tend to return to fair value eventually, but they don’t predict when.

Behind the Numbers

To determine the most undervalued housing markets in the country Fitch Ratings considered five key economic metrics: nominal income growth, population growth, unemployment, change in rental prices and change in home prices.

The list, provided exclusively to FORBES, is based on the year-over-year change in these measures for the 50 largest metropolitan statistical areas in the first quarter of 2017. (MSAs are delineated by the U.S. Office of Management and Budget and encompass a core city and its surrounding suburbs).