Value investors hope to invest in an undervalued company, one that is trading in the stock market for a price below what the company’s financials indicate it’s worth.
Financial data provider SmartAsset took a similar approach when it recently set out to identify the most undervalued cities in America.
The company crafted a model that projects a city’s average home value based on “how desirable a place it is to live.” According to SmartAsset:
By comparing the home values projected by the model with actual home values in each city, we can get a sense of which cities may be overpriced and which cities present a relative bargain. In other words: Which cities are better places to live than their home values alone suggest?
SmartAsset’s model takes eight metrics into consideration. The factors affecting how desirable a city is to live in include:
- High school graduation rates
The model was then used to analyze 200 of the largest cities in the U.S.
One of the most overpriced areas in the country, the analysis found, is California’s Bay Area.
For example, San Francisco’s actual home value is more than $850 per square foot, when SmartAsset’s model suggests it should be closer to $560 — “which would still make it one of the most expensive cities in the country,” the firm notes:
Make no mistake, the Bay Area is a great place to live. Nonetheless, according to our model the quality of life in cities like San Francisco and San Jose does not merit the insane home values.
Pennsylvania is one of the most undervalued areas. The state is home to three of the 10 most undervalued cities in the analysis, meaning the model shows real-estate values in those cities are lower than they should be based on the cities’ livability alone.
The 25 most undervalued cities in SmartAsset’s analysis are:
- Plano, Texas
- Providence, Rhode Island
- McAllen, Texas
- Charleston, South Carolina
- Allentown, Pennsylvania
- Newark, New Jersey
- Overland Park, Kansas
- Fort Collins, Colorado
- Ann Arbor, Michigan
- New Haven, Connecticut
- Albuquerque, New Mexico
- Chula Vista, California
- El Paso, Texas
- Los Angeles
- Athens, Georgia
- San Diego
- Cary, North Carolina
- Lubbock, Texas
- Oxnard, California
- Rochester, New York
- Torrance, California
How would you rate your city based on home values and livability? Undervalued or overpriced? Share your thoughts below or on Facebook.