Housing Bubble

Housing overvalued investors say

November 2005

TIAA-CREF, the financial services organization and leading provider of retirement security in the academic, medical and cultural fields, announced today the results of an investor survey that shows while investors overwhelmingly believe the U.S. housing market is overvalued, they still see real estate as a better investment than the stock market.

"There is a notable disconnect between the run-up in housing market values investors are seeing as homeowners, and their desire to participate in an attractive asset class like real estate over stocks and bonds," said Tom Garbutt, TIAA-CREF managing director and head of real estate.

According to the study, conducted by Roper Public Affairs and Media for TIAA-CREF, nearly three out of four investors (73%) believe housing in the U.S. is overvalued, while just one in five (19%) believe it is valued appropriately. Middle-class investors (those with household incomes from $25,000 to $74,999) are particularly likely to see U.S. housing as overvalued (78%).

Despite their belief that the housing market is overvalued, they still overwhelmingly see real estate as a better investment than the stock market. In a head-to-head match-up, 69% of them said that real estate is a better investment compared to just 24% who said the stock market is a better investment.

While three-quarters of those surveyed believe that the national housing market is overvalued, just 58% (a 15-point drop) say housing in their community is overvalued, with over a third (35%) saying housing in their community is valued correctly.

"Investors are reluctant to believe their own housing market is overheated," said Garbutt. "I guess you could say perceptions of real estate valuations are local."

Investors most often cite residential properties (rental properties or summer and second homes) as the source of their real estate investment with virtually none pointing to commercial real estate investments.

Unlike residential real estate, which many experts believe is overvalued in certain markets, pricing for commercial real estate has remained within appropriate levels even if the market has gotten more aggressive, according to Garbutt.

"On a relative basis, commercial real estate still appears to be priced appropriately when compared to stocks and bonds," said Garbutt. "That's why we believe commercial real estate can play an appropriate role in helping investors saving for retirement build well-diversified portfolios."

Other key findings from the study include:

• Three-quarters (75%) of investors say they have no plans in the future to sell their primary residence and use the proceeds for their retirement income, even though they view real estate as a better investment than the stock market.
• 30% of investors say they own real estate investments in addition to their primary residence. Investors are most likely to have residential rental properties (14%), second homes (13%) and vacation homes (10%) as their real estate investments, while commercial real estate (7%) and REITs (3%) are less common.

source: TIAA-CREF

Technorati tags: housing bubble | Real Estate | Investment