I live here in Phoenix, and it looks to me we're tops... But I'd also vote for San Diego, Miami, Vegas, Naples, Orlando, and even Boise.
All of these markets share one thing in common - it's where the investors went. And now that those days are over, the locals won't be able to keep prices where they are - they'll have to come down, and have some bearing to the local market's income levels, as well as rent income being able to cover ownership costs.
December 10, 2005
Readers - what do you feel is the most overvalued US housing market, and why?
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19 comments:
In the midwest, I feel that properties in the Minneapolis/St.Paul area are overvalued by 40%.
the US is the most overvalued housing market. Probably every little town and big city from coast to coast
But Miami, Phoenix and Vegas are the most obvious. Investors.
#1 with a bullet; Vegas, rampant speculation and overbuilding and their main source of money comes from Southern California.
#2 will surprise; San Francisco, plain old high prices and cost of living and jobs exposure to the financial markets.
#3 Phoenix and San Diego; too many second homes/investment properties.
#5 Inland Empire, nuf said?
#6 Boston, demographics, energy and high prices.
#7 Most of Southern California, Fresno and Sacramento. Only "most" not "all" because places like Malibu, Santa Barbara while pricy and sure to drop will still and always remain "overvalued" because they have value appraisers don't see that buyers do.
Bakersfield, San Bernardino, Riverside, Antelope Valley, Inyo Valley, Central California.
High Prices in historically lower income areas.
Most overvalued:
1) Phoenix
2) Several parts of Florida
3) Las Vegas, NV
4) Medford, Or
5) actually most of CA
6) Boise, land prices
I put Cali at 5 because most parts of cali at least have income levels that are relatively decent, considering the horrible 9.6 percent state income tax. The Top 4 really don't live in high income areas. All of them are headed down though, that's all that really matters right.
can you imagine what a 50% correction would look like? this country hasn't seen the likes of that ever
I think even a 10% correction would have massive worldwide fallout, let alone the devastation on a personal level for families who mistakenly bought at the top (this summer)
That bankruptcy legislation (or industry/donor wet kiss) is looking more and more devious by the day
We see 50% corrections all the time. It happens quite often in speculative investments. That's what different, we are going to see it happen to the sspeculative properties and it is going to drag down the rest of the homeowners with it.
A 10% correction is already here and no one even noticed. 10% is noise, the foam off the top of the beer. When you blow the top inch of foam off your beer do you think you are throwing away 10%? Alright now that houses are being forced to price correctly the next step down is goiing to be a little harder. Priced to sell will be the term. If you are writing a check to the bank that is 1% of the value and 90% or more interest you are looking at losing 1% every month on the market. 6 months 6% hit so you price that in. Third step even harder, actual price reductions below what you think the property is worth. something most RE people have barely imagined. Fourth step will be when sellers are forced to price in expected future depreciation and competititive pressures. There's the blood in the streets some are looking for. When I look at the ROI for a Vegas condo for instance i don't see it working even at 50% price reductions for the same reason the prices have risen so much. IJust because I can't make it work I'm still competing against an idiot who thinks they can make it work. Just like the idiots that bid up the prices. The good thing is "the silent spring" not matter how it plays out will scare all the marginal players out for a very long time.
You may find it interesting that here in Illinois, the housing bubble really exists in all high income residential areas like Lake Forest, Hinsdale, Oak Brook, Barrington Hills etc. For example a house that sold for $600,000 to a commodity market trader just 6 years ago is now on the market for $2,600,000.00. There has been no major remodeling to elevate the price just yuppie speculation and low interest rate driven "false" appreciation. This is typical. (After being put on the market in the spring, this house remains for sale.)
Then there are many "tear downs" where a large home is built on the site of a former large home. Hinsdale is the "poster child" of this with builder/speculators going around tearing down older large homes and replacing them with huge homes at huge prices..... WHAT DO YOU SEE NOW! MANY MANY "For Sale" signs with many saying "new price". ALSO on the speculator homes that have not been torn down you see "FOR RENT" signs.
Downtown Chicago is FLOODED with new condos UNSOLD and many many more being built. Drive around downtown Chicago and you see HUGE banners on the building offering ALL SORTS OF FREEBIES!!! A friend with a prime condo for sale in Chicago with a super view of the lake has seen NO action since Spring on his condo!
So in the high end of the Chicago area the BUBBLE is just as bad as Boston, Washington, Arizona, Florida, AND California.... it just has not been discussed and in my opinion, the Bubble POPPED.......
But then there is that person on the low end who told me that they just "signed" for a new condo with an interest only loan. They just put up their home for sale (so far no inquiries) but they said that, "Their Parents will bail them out!" How about this for a headline, " PARENTS BAIL OUT HOUSING BUBBLE BAD DEALS OF KIDS"!
An incredibly overvalued area is the Hamptons on the east end of Long Island in NY. There are many second homes out there and they'll be put on the market before primary residences and all it will take is one piece of bad luck such as a bad year for Wall Street and lowered bonuses.
Prices in the Hamptons began to soar following the terrorist attacks on 9/11 when New Yorkers sought refuge from the city. However, many homebuyers have become disillusioned as the Hamptons has grown and things like traffic have reached all time highs. No longer finding what they came for, homeowners are looking for less congested spots offering better values, such as Litchfield County, Ct. and even coastal Maine for those who don't mind weekending by commuter jet.
Eventually overheated markets run out of fools. An example is the Hamptons' summer rental market where prices have softened and one of the reasons is the once large supply of renters has declined as many one time renters have become Hamptons homeowners in hopes of renting their places out.
Look for the highest percentage of non-resident speculative buyers... those who don't know better. Where are the fools investing? NYC, D.C., SF, LA and Vegas certainly have their share, but Orlando Florida is my pick. Orlando has long been popular with European investors. And since parts of Europe such as Ireland and the U.K. have an insanely large property bubble, Florida looks cheap. Therefore the Orlando market is hugely distorted by the european idea of what a bit of hot wet sand 112 feet above sea level, is worth. Beyond this is the fact that Orlando (L.A. and Las Vegas) would be unlivable without Air Conditioning. A/C requires a huge amount of energy. The price of oil has doubled in the past couple of years. High energy costs, high interest rates, high insurance costs and the outsourcing of Orlando's anemic tech job market will once again make the "I've got some swampland in Florida" joke as popular as "I'll sell you the brooklyn bridge."
Santa Barbara CA.
House across the street Small 2Bedroom 1 bath house, not in great shape is listing for 1.2 million.
I rent a similar house for $1650 a month.
Property taxes are 1.25% a year.
I'm in the school of thought that housing cost should be in line with the cost to rent. And if you take speculation out of the equation, price drivers should be income (SB wages are maybe 20% below national average) and interest rates.
Florida is very overvalued.
Orlando (as another poster said) is at least 50% higher than what it should be. Tampa/St. Petersburg/Clearwater is 40% higher than what the market can support.
Tampa is 10 feet above sea level and a Katrina like hurricane would wreck such devastation to this area that it would never recover in my lifetime. It's quite possible that Pinellas county would exist solely as an island without any connections to mainland once the bridges are washed out. Property would be practically worthless in that scenario.
Assuming the worst doesn't occur, the area's economy is not vibrant enough to justify the lofty prices. Selling houses to each other does not create a lasting economy and too much of the economy here is based solely on real-estate, call centers, and retail low-wage work. Even shitty trailers are very overpriced.
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