USA Today: Home prices 'extremely overvalued' in 53 cities

[DeepModem Mom]

Home prices 'extremely overvalued' in 53 cities
By Sue Kirchhoff, USA TODAY
Wed Aug 17,


Single-family home prices are "extremely overvalued" in 53 cities that make up nearly a third of the overall U.S. housing market, putting them at high risk of price declines, according to a study released today.

The report, by Richard DeKaser, chief economist of National City Corp., examined 299 metro areas accounting for 80% of the U.S. housing market....DeKaser terms a market extremely overvalued if prices are 30% above where he estimates they should be based on historic price data, area income, mortgage rates and population density - a proxy for land scarcity.

Based on those criteria, Santa Barbara, Calif., is the nation's most out-of-whack market, with houses 69% overpriced. Rounding out the top five: Salinas, Calif.; Naples, Fla.; and Riverside and Merced, Calif.

College Station, Texas, is the most undervalued, priced 19% below where the data suggest it should be. Other inexpensive communities include El Paso, Odessa and Killeen, Texas, and Montgomery, Ala.

The highest-risk markets are in California; Southern Florida; parts of the Boston area; the Long Island, N.Y., counties of Nassau and Suffolk; and Ocean City, N.J....


http://news.yahoo.com/s/usatoday/20050817/bs_usatoday/homepricesextremelyovervaluedin53cities

[Chicago Democrat]

1. Good!

Maybe I can afford one then...

[Spinzonner]

2. Yeah, if you have a job

when the overinflated housing market crashes and takes the leveraged economy with it.

[Cobalt Violet]

18. That what I say too!

Let the bubble burst.

[converted_democrat]

24. Do you really understand what you are saying???

One of the only reasons our economy is still chugging along is because of the jobs that have been created by this market. Many markets are over valued, but the VAST majority are not. If we actually get what you are wishing for it will not only destroy the market value of fair valued homes, it will cripple the economy due to the shear loss of jobs. What your wishing for will literally cripple our economy, and ruin many lives.

On edit- What you want to happen is exactly what the top 1% wants. The economy will fail and the middle class will be stuck holding the bag. No one will be able to pay their mortgage and they can come back and snap the homes up for pennies on the dollar, after everyone else is ruined.

[leesa]

39. It's going to happen whether you wat it or not. Wages are not increasing

there is no way you can maintain this bubble. If people ain't got the money, they can't buy the $500,000 dollar 4 bedroom.

[converted_democrat]

59. But that is not occurring everywhere.........

It's only happening in extreme situations, it's not happening all over the country. If people buy into the hype of what is happening in a few areas and everyone freaks out we are all potentially in danger because of a few reactionaries.


On edit- People do have the money, or at least they do on paper. Until people just flat refuse to take out crazy loans and just flat refuse to pay the asking prices (already occurring is some areas) this is what your stuck with.

[K8-EEE]

48. Here In L.A. Only 11% Can Buy A Median Priced ($600,000) House!

It's CRAZY! That can't go on....it WILL burst...people have got to expect it and position themselves.

I'm thinking of selling my little cottage here although I love it, I could walk away with $500,000 profit which I don't think will ever happen again. I think 2007 when all the "magic" loans start coming due will be the time to buy the foreclosures.

[converted_democrat]

57. I understand what your saying, but that is not happening everywhere.......

Many markets are over valued, but the vast majority are not. If people in fair value markets get alarmed and buy into the hype we are in big trouble. Over valued markets will correct themselves one way or another, but if everyone gets hyped good markets will go bad too. That's where the potential for real trouble presents itself. Baby with the bath water, ya know?

[K8-EEE]

64. I Don't See Why People Would Get Alarmed Unless...

they are getting priced out of the housing market, like the vast majority here are....if I lived where there were decently prices houses I guess I wouldn't care what was going on in LA or NYC or whereever.

[converted_democrat]

75. Well,

It may bother you that people in your area can't afford the housing any longer, but someone can afford it and they are buying that property, otherwise prices would not be where they are now. People must really see a value to being placed where you are, and they are paying for it, right or wrong. I would love to live in New York City, but I can't afford it, and I know it, and I'm okay with that. Why should I be entitled to something if someone is willing to pay more for it? I can't afford to live where I want to, but I am not so short sided to wish a crash that would be awful for everyone, just because I can not have what I want, as some on this thread have.

[1932]

67. I think it's misleading to say "many are not."

When the places that are overvalued make up 2/3rds of the value of the real estate market, it doesn't really matter that they only make up 3/5ths the population or 1/3rd the number of cities.

If there's a crash in those places, it may have a knock-on effect on the rest of the economy and on housing prices even if the rest of the country had been doing a better job of encouraging rational growth up to that point.

Many lenders are national companies, and if they suffer serious losses in their portfolio, it might not be easy to contain the losses in only California, Boston, NYC, Chicago and DC.

[converted_democrat]

70. How is it misleading to say that many are not?

My statement stands, the majority of markets are not over valued, and they are not. I don't see how that is in anyway misleading.

There is not going to be crash unless everyone freaks out at once, or simultaneously loses their jobs, and even then it's far-fetched. The most likely scenario is that they will decline slowly over time or just stop advancing and hold. Real estate by nature is segmented and as long as people stay calm and relaxed things should be okay. You realize a major freak-out is what they want right? Who would take the biggest hit? Blue states and the middle class in general. Relax and stop playing into their hand.

[1932]

80. bad choice of words perhaps, but my point is this:

If there are only a handful of cities where there is a bubble, but those cities collectively represent a very large percentage of the total value of the housing market and a large number of the percentage of homebuyers, if those few cities have crashes, it will have a nationwide effect, especially considering that so much of the mortgage industry is no longer regional but is national.

[converted_democrat]

84. I understand what you are saying but..........

The biggest problem we are going to face here is mass hysteria. Just about the only way that a crash will happen is if "everyone" collectively flips out, or like I said before if "everyone" loses their jobs at once. I highly doubt either of these scenarios will happen, and if they do I will eat my words, but I don't see it happening. "Crashes" rarely happen, it is much, much more likely that prices will hold or decline slowly over a number of years. Unless you own a home that extremely over-valued and you've cashed out the equity, or you have a really bad loan on an over-valued home, or own a bunch of rentals in an area that is said to be over valued you have little to worry about.

[1932]

87. According to Shiller, mass hysteria is how the bubble starts and is almost

inevitably the way it stops.

If it was irrationality that got you to pay way more than what the house was worth (because you got easy credit and your president keeps telling you to buy a home), it's hard to say, hey, don't get irrational and bid the prices down too far.

As for sudden and gradual collapses, Shiller talks about this. He saids that the stock market crash in 29 was actually more gradual. It recovered a big chunk of its value soon after the black tuesday, but then let out a lot of air later and took decades to recover to Oct '29 levels. But it was still a crash.

[converted_democrat]

90. I still do not think there will be a crash.......

Earlier you had made a statement about "national" mortgage companies, and how losses could send them over the edge. I just do not see how it could happen for a number of different reasons. It would take a huge amount of defaults, and then on top of that there would have to be no market for the houses that were defaulted on. There have been a record number of foreclosures in many states, but there is always someone there waiting to snap up a deal. There would have to be a "perfect storm" of circumstances to make a crash happen, and I just don't see it happening. We are already seeing patterns of markets cooling, but nothing disastrous by any means. BTW, comparing a real estate crash to a stock market crash is like comparing apples to oranges.

[hyphenate]

86. Only there will be no customers to buy them

If that happens. In some areas, there is a significant glut in the market of new homes, and the developers are ruining many tracts of land that were once protected areas. Is there any wonder that wildlife is beginning to show up more in some areas, when there is building into what was once their area?

If we run into a two class system because of the assholes running our country now, there WILL be no recovery for the middle class, and we will be completely and totally divided into a dangerous situation that in the past has caused civil wars and revolutions.

And yes, while that sounds ominous, it's on the horizon.

[converted_democrat]

91. Your saying that there will be no one to buy them?

Where did you get that info? There have been a record number of defaults in some states, but there is always someone/ some company standing in the wings to snap up a good deal. People are panicking for no good reason. I understand individual panic when they realize they have made a bad deal, but that has little to do with a full on crash. So many factors go into a crash and we are not even close to being there yet. I agree that the market is bad for the middle class, but it does not mean that there is going to be a crash.

[converted_democrat]

29. Really?

Read post number 24 and see how long your still saying "good." Being frustrated over not being able to afford a home in an overvalued market is one thing, wishing financial disaster on the middle class is quite another. The VAST majority of markets are not over valued, the dollar just is not worth what it was. I agree that there are many "over valued" markets right now, but the vast majority are not.

On edit- Many jobs recently created have been because of this market, if we lose those, we are in trouble.

[autorank]

3. Man, they ought to pay people to live in Merced! (Just kidding)

:rofl:

[John Q. Citizen]

14. It made me laugh so it must be.........

true?

[Demeter]

79. Or Texas

maybe that's how the politicians get elected there.

[pitohui]

4. dude's an idiot

study is without validity

has he even been to New Jersey, they ain't making any more coastline there, no way is the price out of line w. demand

[hallc]

21. I dunno...

NJ isn't the most wonderful place to live, and yet my cousin just bought a rancher for $500,000 - and its not even a real nice rancher.

[SemperEadem]

37. I can't believe that they tax you to step on the sand at the beach in NJ

must be the difference between a beach and a shore: a beach is free, a shore is taxed.

[cliss]

5. I just read a feature article about this in Fortune magazine.

The magazine detailed how insane the real estate market is right now. Certain areas are more overpriced than others, like California, Phoenix, Las Vegas.

The article said that so many people are flipping properties right now, that they are a force unto themselves, bidding up the market just based on their own lunatic trading each other up.

What goes up, must come down.

[Skip Intro]

6. Homes in areas that I considered buying three years ago

have almost doubled in prices, starting to climb out of my reach. I reallly hope that changes.

I could kick myself for not buying then.

[SW FL Dem]

7. No kidding, my neighbors just put their 2400 sq ft

tract home on the market for $799K. It's nothing special, formica counters and 10 year old carpet, no pool on less than a quarter acre lot. Six months ago the same floor plan with a pool was selling for around 600K, two years ago it was 400K. I'm not complaining, my equity is going up but I sure wouldn't buy their house at that price.

[melissinha]

8. Austin is -5%

I thought Austin was overvalued.... pretty encouraging.... but man.... No plain Jane house should ever be worth $800 k..... thats BS.

[leftofthedial]

9. this is the latest front in the wealthy's attack on the middle class

talk down the real estate market, depress home values

the middle class, who have a huge percentage of their net worth invested in their homes, will find themselves even more grossly over-leveraged and unable to sustain their debt load.

they've already destroyed our employment base . . .

can you say "feudalism"?

[Francine Frensky]

20. Their next step is to eliminate the mort. interest deduction

through the flat tax. That will quickly deflate house prices and probably in twenty years or so, with no tax advantage to buying a home, you would begin to see a significant reduction in percentages of people who own their own homes.

[Danmel]

25. That would be the ultimate punishment on the Blue States

Since we tend to be high tax states- NY, California, Mass etc. That would absolutely kill the market on in those areas. Yet I know people who still voted for the boy king, even when told they could lose their property tax deduction which would drive up their costs tremendously.

[northzax]

30. you can have a property tax and mortgage reduction

when I can have a rent deduction. if everyone can write off 20% of their home's value (an example, made up number) then all it does is raise the price for all homes 20%, making it harder for those who want to buy in for the first time.

[Francine Frensky]

69. It's called a "tax incentive" for a reason!!

The point is to encourage people to buy! It's an INCENTIVE offered by the government to encourage behavior (owning a house) that's good for the community. Homeowners generally make better citizens than renters ....mainly because they have the mortgage obligation around their neck, and that tends to sober people up.

[northzax]

71. no, it punishes urbanites and increases the demand

for expansion of the suburbs. Why am I punished for living an evironmentally and socially responsible lifestyle, living where I walk to the store, take public transportation to work and the like? For the $600,000 that an apartment in my neighborhood would cost me, I could buy a nice house 75 miles out of town and drive. then I'd get a deduction. how stupid is that?

If I made twice my salary, I could afford to buy something and get the deduction, so I am punished for only making $40,000 a year. this is good social policy?

[converted_democrat]

23. My husband and I just had this same conversation, yesterday.

Many of the markets are truth be told overvalued, but the vast majority are not. If everyone starts freaking out over this hyped up nonsense our country is headed for real problems. One of the biggest reasons our economy is still chugging along is because of the numbers of jobs created by the real estate market. In the end if everyone freaks out you will see markets that are right on track take a wrong turn and a massive loss of jobs that will literally cripple our economy.

[merwin]

10. WOW, my hometown of Bellingham, WA is in the top 50.

That WAS a tiny little town in NW Washington just south of the border. It has exploded in population in the last 10 years. Apparently prices too.

[Straight Shooter]

11. Bend, Oregon, 45% overvalued. I can believe it.

Realtors here mention that a lot of newcomers to this area of Oregon are coming from Bend. Well, yippee. They've got their pockets stuffed with cash from selling their old home, they build a new "ego house" here because land is less expensive (not cheap!), and it's driving everybody's property value up.

It is not a good thing. A rapid increase in value is only good if you're planning to move or if you have investment property. For the rest of us, it means having to deal with higher property taxes, which are fairly high for the national average already. I imagine that the long-time natives who are living on a fixed income will be hurting.

[The_Casual_Observer]

12. Not for too much longer I'm afraid.

Houses of today are the tulips and ponzi schemes of days past. They keep warning about it, but nobody is listening. Who will be the last bigger fool?

[Rich Hunt]

15. you should see some of the crap up for sale

I mean, some of this garbage is going for half a million, a million and it ain't worth it.

I guess a lot of people were useful suckers when these things were built, which was, like, two years ago, judging from the pictures I've seen.

[AngryAmish]

28. Not true

With ponzi schemes and the tulip craze (among other bubbles that have happened) the things being purchased had no intrinsic value. However, with real estate you are buying something that you can live in.

The proper way to evaluate if real estate market is overvalued is comparing the price of mortgages (less the income tax deduction) to price of rent. Now, with a mortgage you get equity so one should pay a little more than rent.

Anyway, comparing rents to mortgages about six months ago there were a few bubble-like markets (NYC, Miami, San Fran area) but on the whole the US market is ok.

Besides, real estate bubbles do not crash. Did prices crash during the S&L crisis in the 80s? no. Did Japanese real estate prices crash when their bubble burst? They fell but real slowly.

Their ARE markets that are grossly overvalued. But real estate is a much segmented market so if prices crash in NYC it does not effect people's value of their house in New Mexico.

[northzax]

32. of course the coasts are valued higher

than the middle, there is less land for expansion. Omaha can keep spreading out to accomodate demand, Trenton is out of cheap expansion land.

Actually, localised prices did crash in the 80's, in one year, real estate in boston lost 80% of it's value. that is a crash. Commercial realestate in Tokyo crashed 60% in 6 months. New York declined 15% a year for three years in the late 80's. it can happen.

[AngryAmish]

40. With all due respect

I do not believe your figures above. If I am wrong I apologize in advance.

[spinbaby]

51. It doesn't need to crash to hurt

Real estate doesn't crash suddenly because it's not a liquid commodity. But remember the slump in the late 80s--even then, when mortgages were a lot less "creative," many people wound up with houses that were worth much less than they paid for them and many people just walked away from their houses. Nowadays with 0% down, interest only mortgages it will be worse.

[AngryAmish]

53. You are right

However some people keep anticipating crashes that never happen. I was trying to offer some non-doom-and-gloom insight.

[1932]

58. Tulips had intrinsic value and were rational investments.

Robert Schiller (IIRC the author's name) writes about this in his book Irrational Exuberance.

He said that there was a logic to the tulip bubble (as there is with all bubbles). So long as there's a market, it makes sense to invest, and the tulips that were getting the highest prices had a fungus that made them very unique. Also, tulips could produce more tulips. Demand/rarity and the fact they could be used to produce more tulips made them a rational investment.

It isn't accurate to characterize the tulip bubble as a ponzi scheme. It was no less rational than investing in antiques, gold, a small factory making consumer goods, or real estate.

Schiller says the problems with bubbles are due to things such as when there aren't enough good investments and too much money goes into just one thing (which is what has happened with real estate since the stock market has plateaued the last five years).

Bubbles are bad not so much because, for example, tulips or real estate are inherently bad things in which to invest. They're bad because the media and mass hysteria encourage everyone to put their money into just one thing. When the excitement which causes markets to inflate then dissipates as easily as it was created, people lose a great deal of money.

(Schiller says that it wasn't a coincidence that the mass media started about the same time as the first investment bubble and has been a critical part of every subsequent bubble.)

So, tulips, like real estate, were a rational investment, just so long as you timed your exit precisely.

That doesn't mean bubbles are a good thing. It would be much better if there were many more opportunities to invest and if the things that gave the greatest returns didn't do so because of media/mass hysteria but because they were actually socially valuable inventions or business models from which investors were getting a return based on the value created for society.

So far as real estate goes, I think it's obvious that this is a bubble. It's hysteria and easy credit which is causing the price increases (rather than real underlying value). I think one of the biggest risks to housing values is an improving economy. The minute the stock market, or European markets, or anything starts to look like a safer and decent investment, everyone in real estate to make money (which is a very large number of people) are going to pull out and put their money into a safer investment, which will cause prices to drop. The second biggest threat is if people merely perceive the real estate market as unstable, regardless of the availability of alternative investments. If people suddenly decide a no or low-return place to put their money (like cash and bonds or anything else) is the way to go, real estate will be in trouble.

The third problem is wages. If people can't sustain the levels of debt they're going into to buy houses, prices are going to drop. Even if real estate is an investors paradise up to now, it depends on a strong foundation of middle class people who can afford to buy homes. If that foundation is gone, real estate prices are not going to stay high in a market where the only people buying are buying to flip to each other.

I think the crux of the matter is that there is no rationality to the huge increases in house prices (even though the market is in something that has intrinsic value). There isn't a supply and demand problem, and rental values are dropping. Wages and employment levels also don't justify the increases. So, you say that a house has value that tulips don't have. Even if for the sake of argument we agreed that houses had a value that tulips didn't have, that value has been the same -- the value of a place to live hasn't increased to the degree that housing prices have shot up.

Although there isn't a historic precedent for housing prices to tank, that doesn't mean they won't or they can't. Bubble mentality throughout history provides examples of people saying no historical precedent meant an utter bust was impossible, and then the bubble burst. I believe one difference between today's housing market that makes it hard to make comparisons to Japan or the '80s is that people have never been less conservative about their investments in their homes until now.

Not only are many many people buying residential real estate with the sole purpose of making a profit, but many home owners now treat home ownership itself not as a safe reliable way to make some money, but as a way to make a great deal of money, whether they plan to sell their house for a profit, or if they're only using re-mortgages as a cash machine. To make the most money possible, a lot of people are taking risks that just weren't taken in the past, and that's the sort of behavior that causes bubbles to inflate and deflate.

Also, you say that a crash in the big markets won't influence values in the small markets. If a crash occurred in the markets where the banks have most of their money (NYC, CA plus two or three other regions) and those banks lost a great deal of money, they might become much more conservative in their lending nationwide which would reduce prices everywhere. So, it is possible for people in NY to lose 300,000 in 6 months, and people in Wisconsin to lose 50,000 in that same period, and have everyone hurt a great deal.

[Mike03]

62. Outstanding analysis

Thanks for posting this.

[1932]

65. I wish I could take the credit. It's mostly Robert Shiller.

I read the first edition of Irrational Exuberance. There's a new edition with a chapter on the real estate market. Hopefully, I've understood what he was saying in the first edition and his new chapter argues something similiar to what I've written here.

Here's the link for the second edition:

http://www.amazon.com/exec/obidos/tg/detail/-/0691123357/qid=1124378730/sr=8-1/ref=pd_bbs_1/104-9002889-8520749?v=glance&s=books&n=507846

[northzax]

73. and tulips weren't the problem

the problem was speculation on options to buy tulips. right before the bust in the tulip market, tulips were being sold ten or more times down the chain before they even came out of the ground. People were financing additional purchase contracts with the proceeds of other contracts for something they didn't even possess. an example. I buy a red tulip from Bob for $20, deliverable on Feb. 1. I sell that option to Steve for $25, who sells it to Frank for $30. Steve uses the $30 to buy another option from Bill on a pink tulip. The problem comes in when Frank goes to Steve and says 'where is my tulip?' Steve comes to me, but I don't have it, so I go to Bob. If that chain breaks down, anywhere, Frank wants his money back, but Streve has already spent it. So everyone paid escalating prices for something that doesn't even exist yet. It only works if everyone can keep paying.

The tulip bust occured, according to one story I read, in one cafe when all of a sudden, a tulip option (that's what was traded, options, not tulips) didn't sell. And the whole house of cards came down.

[1932]

81. When collective wisdom/hysteria reversed on tulips, the hurt spread wide

I guess a modern analogy is that in California a very large percentage of jobs and GDP is tied up in the real estate industry. When so much money can be made, people figure out many ways to get a piece of the pie. If the irrational exuberance that created the bubble disappears as quickly and irrationally as it started, then lots of people are hurt.

[kodi]

13. paul krugman was warning of this 18 months ago.

but what does he know, right?

Krugman has been honored with the Eccles Prize for Excellence in Economic Writing, the John Bates Clark Medal, the Adam Smith Award, the Nikkei Prize (with M. Fujita and A. Venables), and the Alonso Prize....and he'll probably pick up a Nobel Prize within 10 years.

[The Sushi Bandit]

16. what about MAUI????

if it was on the list it would be number 1

[Megahurtz]

74. I can believe that. n/t

[Chicago Democrat]

78. What about NYC?

not even on the list!

[northzax]

83. because values haven't syrocketed

and there is a ton of money in The City. The calculation is based on how the current market differs from the projections using other data (like income and job growth) NYC is not really an outlier on the list, plenty fo incomes are rising as fast as real estate values. In addition, the high cost of buying in reduces individual speculation. so it's a tricky index to use.

[MindPilot]

17. I don't get the "overvalued" concept

The real estate market is based on what homes sell for. If the houses in a certain area are moving for a certain price range, then that is their value. It's not what some expert says it should be.

I agree with an earlier poster that this is an effort to depress the real estate market; the one thing the middle class has left.

[the other one]

19. Overvalued and overpriced are two different things.

While the price may be justified by the market (supply v. demand), value takes into account other factors, most importantly historical data and trend lines. While the price of one house within a market may be fair for the market, the market may not account for growth trends.

E.G. their is a booming market in condos in south Florida. The price of any one condo may be fair compared to other condos in the area BUT the price of all condos is PROBABLY overvalued in terms of long term potential. The biggest factor in this case is that most people moving to SFL are retirees. If the prices are too high for them to purchase, they will not buy and the condos will either go unsold or drop in price until the traditional buyer is once again comfortable with the price. The question is not if their will be a correction, but when...

[Pretty_in_CodePink]

36. Those condo sales are freaky

When I was in North Miami Beach in the spring I just couldn't believe all the condo high rises. 10's of thousands of units. Several new buildings going up including one by Trump. I just was wondering who is buying all this stuff. The answer of course was snowbirds. But then recently I heard that they are flipping like crazy. Even online sight unseen. That just seems nuts to me. It strikes me as a pyramid scheme. Everybody makes money unless you're the one at the bottom. And who knows where the bottom is.

In my neighborhood in Orlando home prices are increasing by about $20k every couple of months. I wouldn't sell my house now for anything. I like that I bought it at less than half it's current value (7years ago). I'm too nervous to buy into this market at the current prices.


Edit for spelling

[mccoyn]

52. New developments go up a lot in the first 5 years.

The developer can't hold onto it that long since they want to move on to the next project. The problem is that by building so many similiar homes they use up the demand and can't fill them all. This leaves an opportunity for an investor willing to buy the condo to fill the gap.

[sendero]

22. When housing prices..

.... are driven by speculators (folks buying with the intent to sell, not live in) yes, you can have distortions in the market price.


It has happened again and again throughout history and why anyone thinks it can't/won't happen with houses is beyond me.

[CBHagman]

35. Yes, I've heard about some disturbing trends in that area.

What's also disturbing is that the current market has harmed Habitat for Humanity homeowners, who are expected to live in their homes and not sell them for a profit. The irony is that they are being hit by higher taxes and are having trouble affording the homes they paid sweat equity to get. These are families in simple homes, and they're being squeezed by the current atmosphere.

[Le Taz Hot]

26. I live around one of those "overvalued" markets

and what they fail to recognize is that our houses were UNDERvalued for years. At the end of 1999, I bought a house in Fresno (3 bedroom, 2 bath, GORGEOUS landscaped back yard) for under $100,000. Needless to say it has greatly appreciated in value.

Merced has a brand new UC so of course housing prices are going up. Bakersfield is now a bedroom community for those who work in/around the San Fernando Valley and L.A and those areas really have priced themselves out of the market. Fresno is becoming a bedroom community for those who work in/around the San Jose area (same with Los Banos) and it's the same situation.

The author of these articles is looking at pieces of paper and not bothering to actually do real research (imagine that!). The housing prices in the Central San Joaquin Valley are going nowhere but up and, at least in some areas such as Merced, the jobs are coming with them.

[northzax]

33. but what happens, to play devil's advocate

to your bedroom communities when gas is at $3+ permanently? reduces the value of a place you commute from, doesn't it?

[Le Taz Hot]

42. Since gas has never been

that high I have nothing on which to base speculation; however, my guess is that those commuters will continue to commute since they still won't be able to buy houses in their own areas (S.F., L.A., San Jose, etc.). I'm hoping, of course, that this will encourage public transportation development to/from the areas I mentioned.

Another point is that, since our housing prices were originally undervalued anyway, I think the worst that will happen is that the prices will stagnate. I can't imagine any 3-bedroom, 2-bath house in California dropping below the $92,900 I paid for it.

[mccoyn]

54. Do some math.

A $200,000 mortgage at 6% has monthly payments of $1200. A $300,000 mortgage has a monthly payment of $1800. Thats $600 a month savings to offset the gas prices. At $4/gal. thats 150 gallons or 5 gallons a day. With a 10 mpg vehicle thats 50 miles a day. Is it cheaper, month to month, to live in a suburb? Yes, and it will be for a long time.

Gas goes to $10/gal.? Get a 50 mpg hybrid and you can drive 100 miles a day with your savings.

The communities aren't going to lose value.

[alkaline9]

56. very good point ...

as long as the prices of homes in the cities continue to rise along with the suburbs, even if gas prices rise, it's really just in line with housing so it's all on the same scale. And even if gas prices are out pacing homes, people who couldn't afford to live in the city still wont be able to live there. They will be forced to buy hybrids (or motorcycles haha) and have a longer commute to live in affordable housing. I mean, the population keeps growing .. and these people have to live somewhere!

[1932]

61. However, as people have to work longer hours to pay higher mortgages

their free time might become much more valuable, and with bankrupt states and municipalities not investing in rapid transit, people might decide that they can't afford to lose so much of their time commuting.

Although I doubt that increased gas prices will cause housing prices in the suburbs to drop, I can imagine that a set of circumstances beyond only gas prices might make people want to move closer to where they work, which could hurt prices in the suburbs a little bit. Along with overdevelopment, cheap construction and crappy government services (like no sidewalks, bad schools, etc.) suburbs could easily become the 21st century version of Red Hook or Cabrini Greens.

I also think that it's inevitable that someday (sooner rather than later, I hope) we get progressive state, local and national governments which will invest in better and affordable rapid transit, good public services, and will put money in the pockets of working people who live in suburbs, which will allow people to live in suburbs without having to sacrifice free time and money.

[snooper2]

63. improper math...

Are you including 20% down? PMI insurance, property taxes, homeowners insurance, escrow?????

113,000 with 3% down at 5.634% interest = 939.37 month

[WinkyDink]

27. okay, clue me in

I'm 55. When, in that time span, have housing and/or land prices gone down?
I mean, other than in, say, Love Canal (and even that was temporary) or the South Bronx?

I have land in Cape Coral, FL., and I'm being offered a nice chunk of change for it. If, in 10 years, that offer is halved or worse, so be it.

[northzax]

38. over the entire 55 years?

prices have, of course, gone up overall. There are localised examples (Farmland in the 80's, residential in Boston in the late 80's, New York in the late 80's, Condos in Chicago in the early 90's, there are plenty of examples) There are two things that can really cause trouble in this market: in the overheated speculation-based areas, people are investing in real estate, as an investment, buying condos to flip them in a year and the like. People invest their own money, that they can't afford to lose, in short term investments (interest only mortgages especially) imagine taking an interest only mortgage on a 500,000 condo. The market cools drastically, and you can't sell it. You are paying interest, month after month, and not building equity, since the value of the property is less than what you paid for it. So you default. boom. now that happens to 20% of all the property (rough calculations in DC say that 20% or so of the property being bought is as investments, with interest only, short term mortgages) someone gets left holding the bag, you konw?

[Mike03]

44. Yes, this is the point

People seem to think that folks are paying cash for these homes but because of the low rates of the past few years and absurd mortgage instruments like piggy-back loans and so forth many people have little, no, or negative equity and are taking out more loans based on what they imagine will be the inflation in the worth of their homes. The Fed bears some blame for this for permitting ludicrously lax lending policies.

[northzax]

47. if your debt is structured on your value increasing 10% a year

and it only goes up 5%, you're screwed. who the hell has $500,000 in cash lying around?

[Mike03]

50. Exactly

Also, I didn't mean to lay the blame only on the Fed. There are so many causative factors that are contributing to this. Consumers also have to use some common sense when it comes to structuring these deals, although it's hard to blame anyone for wanting a home. The banks and lenders extended credit to many people who are not good credit risks. Defaults are beginning to escalate and I fear it will get worse.

[Ruby Romaine]

31. can someone explain the following stats from the article?

re overvalues?
Flint, MI 27%
Ann Arbor, MI 18%
this doesn't make any sense.

[1932]

49. Wages in Flint are much lower.

Part of the calculation is the relationship between income in a region and housing prices. So if housing prices held steady and wages plunged, the region might be overvalued relative to a place where wage increases have increased along with housing prices. I suspect that's exactly what has happened in Flint and Ann Arbor.

[mccoyn]

55. I just bought a home in Ann Arbor.

There are a lot more sellers now than buyers. The condo I ended up with has been on the market for over six months. I laughed when I read the description "beat the spring rush" as we were running into late summer.

18% overvalued? Then they have been overvalued for a long time. None of the places I looked at the history of have grown that much in 5 years.

I guess lower wages could be the cause. The cities largest employer, The University of Michigan, has maintained between 2% and 4% annual raises for the past few years thanks directly to the Bush tax cuts.

[1932]

60. Prices in Ann Arbor were sane until Pfizer moved in.

Now that Pfizer is hurting (no?) prices don't have the upward pressure that Pfizer induced.

[Fovea]

34. While it will hurt

Real estate has become a Ponzi scheme, and things that can't go on forever...don't.

[Catchawave]

41. No mention of an NYC apt at $1,000 a sq ft ?

Which means an apt the size of my garage would sell for $400,000 !

Whoa nellie!

[coffeenap]

43. Flint, MI is more overvalued than Chicago??? Flint? Call Michael Moore!

:)

[djack23]

45. There is a housing bubble in many cities

There is a housing bubble in many cities. This article is basically right.

http://bubblemeter.blogspot.com

[alkaline9]

46. flame me if you must but...

...I have no problem paying top dollar to be near the beach in New Jersey, to be around my liberal friends and neighbors, in a relatively comfortable climate year round.

This guy says the top undervalued places are in Texas .... WELL DUH!!! Who the f*ck would wanna live in Texas and be around all those conservatives?

Like another poster said earlier, there's only so much Jersey shoreline, and it's all been developed. I'm not saying there isn't other nice places to live... I've traveled a bit... but I'm a shore person, and I never want to live far from the beach. I would gladly pick up and move from NJ to California (if I could afford it), but that's about it. Any further south of Jersey and you begin to hit more and more conservative rethugs. Any further north and the winters get to be a little too cold and snowy (although living in Mass. would be my 3rd choice).

I don't disagree that some markets are inflated ... but I think people will ALWAYS be willing to pay more to live in a nicer place. IMHO when the "nice" areas go up drastically in price, its probably just because the people with money realize that it's WORTH it!!

[Seabiscuit]

66. Our house has appreciated 90% in 4 years since we bought it.

But I'm not worried about some bubble bursting because we didn't buy it as an investment (or we'd be getting ready to sell it and take the money and move to a much less expensive part of the world). We bought it to raise our children and then live out the rest of our lives in. By the time our children inherit it all this bubble stuff will be ancient history. I personally plan to die in our bed here.

[Neshanic]

68. Santa Barbara..Ya think? Trying to get an apartment there....

is door into the truely absurd.

Everybody has a little hovel that they want to rent in their back yard. Hot plate, office fridge, microwave, 12x12....$1500.

Also you are asked the following:

Have friends? Don't like friends over.
Overnight guests...don't even think about it.
Pet...don't even ask.
Do you work alot? We do not want you "hanging around" during the week.
Car...make, year, are there dents? Truck? No..we don't like the look, we have "Range Rovers and Mercedes".

These and more were actual true to life questions asked of me for a crap box in someone's back yard.

[shrike]

72. Hee hee

Sounds a lot like Providence in the mid-80s. I'll never forget the folks who were trying to rent out what had to be a former child's playhouse in their backyard. Had to bite my lip to keep from laughing.

Oh yeah, and they want you to tap dance to get their lousy rental. Don't call us, we'll call you; just leave your application and we'll get to it eventually. Then there is the "application fee" you have to pay so they can search your records and find out if you're a good risk.

BTW, I'm the daughter of a landlord, and I know the crap tenants can put people through. But really, the inflated view some people have of themselves, just because they own a rental.

[Chicago Democrat]

76. Why are Houses "Overvalued"? I think the dollar is the problem

and high housing prices is the symptom....

I mean do we really think we can print half a trillion in T Bills and have zero effect on the money supply and prices? High housing prices are just another natural outcome of runaway deficits and undertaxation.

[expatriot]

77. This pisses me off. Where is Yuma, Arizona on this list?

The population of metro Yuma in 2000 was 160K, it is easily over 200K at this point. (had 50% increase from 1990 to 2000).

Whereas Dubuque, Iowa (which I know well, it's where my wife was born and raised) has an entire county population of 90,000 and entire country population could HARDLY be counted as being in its "metro" area. It's city population is like 50 or 60K and has no real suburbs.

Top 230 metro areas my ass.

This irks me because my wife and I are tossing and turning as to whether to buy in a market like this. We'd be first time buyers and prices have soared phenomonally this past year alone. We are friends with this real estate insider/investor who owns 5 houses here as an investment and that she knows numerous people here who have have bought ten homes in the new subdivisions. It is rife with speculation. She still recommends that we buy because she thinks prices will increase for the next 3-4 years.

But how do we know? ARRGHHHGHGHGH! We are paying very low rent (another bad sign of hugely speculative market) right now and so its not like we are really burning money (rent is much less than interest we'd be paying).

[WCGreen]

82. The distrubing part of all this

is that, according to a report I saw on CNBC yesterday, something like 35% of all mortgages written since 2000 have 5% or less equity involved...

Now that is scary for the loaner and the loanee....

To recoup on their investment if thing turn rotten, the companies will have little wiggle on the price....

They could be writting of 20% - 30% os their portfolio's value if things go south....

[hyphenate]

85. No shit

I can't even afford to think about buying a house in Massachusetts. I'm looking at upstate New York where the prices are, at least, at least realistic.

[moondust]

88. Salinas?

I thought that was basically 101 flypaper...

They may not even have a public library after the end of the year!

[lanlady]

89. $950K homes going up in Manassas, VA

Couldn't believe my eyes the other day when I saw a brand new development of McMansions with that kind of price tag. Who in their right mind would pay close to a million to live in goddamn Manassas?