January 12, 2006

HP readers - let's hear from you - what US market has the biggest housing bubble?


We talked about this a couple of months ago, and Miami, San Diego, Phoenix, Vegas, LA and SF were all at the top of the list.

Knowing what you know today, what do you think is the biggest bubble market? As in, big rise followed by upcoming big decline?

Word from the street here is very good - so if you're actually from that market, let us know what you're seeing out there.

From my perch today in Phoenix, not only do I see the explosion in inventory, but I hear fear out there - fear on the part of potential new buyers that they'd be buying at the top, and fear from my contacts in the real estate industrial complex that the good times may be over.

36 comments:

Anonymous said...

Real estate values are very difficult to understand … economics is not a science, neither is an understanding real estate values.

With that said, here’s my 2 cents:

I believe the best and most accurate way to evaluate real estate is by taking the medium home price and dividing it by the medium household income. The higher the multiple, the bubblier the community. This is the primary reason why I believe Las Vegas is much less bubbly than places like Orange County. And areas like Dallas with household incomes over 60,000 and many home prices less than 130,000 are likely to experience more migration as the housing bubble goes poof in the bubbly communities. I expect many communities in Texas to actually see home values increase as the bubble pops.

Though I do concede that other factors such as investors, rental incomes, and building restrictions do affect home values, just not as much as personal incomes.

I believe there will be surprises when the market rolls over (that hasn’t happened yet, though I think we’re at a tipping point) … it’ll likely be much worse in many communities than much of Wall Street wants us to believe, yet there will be communities that were targeted as bubbly, that’ll drop less than many expected.

Robert Coté said...

Vegas is much worse off than the home price/household income ratio would suggest. Lots of dual income households. Far less equity built up (being newer and poorer). Really dangerous exposure to energy costs and water availability. Understand energy. If LV actually paid anywhere near its actual electricty costs it would fold overnight. If gas gets expensive or even if SoCal goes into recession because of their energy costs LV caves in. Any water war of CA v NV v AZ, Las Vegas loses. CA allows non-indian gaming, LV loses. LV, while far more diversified hasn't reached sufficient critical mass to be self sustaining yet.

So that's it. Far more exposed but running under different rules. One thing for sure, it is wholly distorting to have their cheap electricity and water. When things get tight expect that to become an issue.

Out at the peak said...

Yeah, Texas has the best chance of going up after the coasts fall (since it was the last CA investor destination). In general, I'd say the middle states will have steady appreciation or not decline while the coast states plus pocket bubble areas will definitely plumet over time.

Nathan said...

San Diego for the reasons stated above. It has the lowest household income of the three largest metro areas in California and has seen the most rapid price appreciation. In addition, contrary to Phoenix and Las Vegas it has not seen anywhere near their job growth.

Robert:

California will never allow non-indian gaming for two reasons. Conservative voters in the California hinterlands, and the Indian tribes, and then the more moderate voters worried about crime and such that comes with gambling.
Plus, even if California allows non-Indian gaming, Vegas has an agglomeration of resorts which gives it a distinct competitive advantage that California or anywhere else (Atlantic City, etc) is hard pressed to duplicate.

Left_Las_Vegas said...

Las Vegas is one the biggest bubble markets I see today. I checked on Windermere and there are currently about 14,000 houses for sale for the 2 million people living there. Compare that with Seattle which has about 13,000 and 3.5 million.

The most suprising thing about the Vegas bubble is the peoples' arrogance to it. The LVRJ has a 'housing market' article section on their website, and the articles are giddy and full of spin. The theme is that things are temporarily cooled down, that median prices slipped 1-2%, while quoting some local NAR rep as saying that appreciation will return to normal levels by the spring (meaning 30-40% annual, in their twisted world). They always cite job creation, but those jobs are mostly construction or casino slave jobs, with an annual income of 20-40k.

Vegas had one of the earliest runups in price, and will most likely be the first to experience a major fall. I sense seller panic coming in March-April...

plodell said...

I've seen a shift over the last 6 months in So. Florida. Here's an excerpt from the Jan 2006 issue of Florida Trend:
In Miami, Michael T. Fay, president of Colliers Abood Wood-Fay, says he’s already seen signs of a transition. He’s been getting more phone calls from people wanting to sell assets, and several large REITs are looking to unload billions of dollars of real estate this year. “We could be at market-level highs,” says Fay. “People are now looking at profits and looking to take some of their gains off the table.” Rising interest rates on adjustable rate loans and capital gains taxes at their lowest point in years will push even more sellers into the market, he predicts. “You’re going to see more sellers in the market this year than we’ve seen in the past.”

Robert Coté said...

Nathan said...
Robert:
California will never allow non-indian gaming for two reasons. Conservative voters in the California hinterlands, and the Indian tribes, and then the more moderate voters worried about crime and such that comes with gambling.


I -used- to believe that as well but times change. The Lottery, the Indian casinos and their land use abuses and massive profits and obvious corupting influence on politics tells me the time is coming. We aren't conservative anymore, we are LA, SF and a Democrat Legislature. We are in such a deep financial mess that anything less than a "hail mary" play like gambling isn't enough.

Plus, even if California allows non-Indian gaming, Vegas has an agglomeration of resorts which gives it a distinct competitive advantage that California or anywhere else (Atlantic City, etc) is hard pressed to duplicate.

LV without a CA captive market is a whorehouse whose only customer is their own cook and gardener. Sorry, brutal but the results would be equally brutal. Pissed off Californians are also not going to let LV keep 8 cent electricty when they are paying 20 cents. California is not going to drive to LV with $4 gas to spend money they don't have.

Left_Las_Vegas said...
Las Vegas is one the biggest bubble markets I see today. I checked on Windermere and there are currently about 14,000 houses for sale for the 2 million people living there. Compare that with Seattle which has about 13,000 and 3.5 million.


Compare to San Jose/Santa Clara County
Population 2005: 1.76 million 2,716 listings!

The most suprising thing about the Vegas bubble is the peoples' arrogance to it. The LVRJ has a 'housing market' article section on their website, and the articles are giddy and full of spin.

I've already heard stories about the luxury condo scam. "Be in the same buildingt with Elvis and Jackie O." There's just no transparency in the LV market. That's what scares me next most to the fact that the industries are so job intensive that general economic downturns will act double down in Vegas.

aznycblogger said...

Biggest bubble areas: Las Vegas and Phoenix. I don't have any fancy calculations to back-up, just a gut feeling.

keith said...

robert - here in phoenix there's a condo complex going up in tempe that the builder is telling people (including the press) that jerry seinfield was in and is 'interested'

live with the stars

yeah, right

wonder if mr. seinfield would appreciate his image being use to market over priced apartments

Anonymous said...

Riverside Co. California. 986 new listings, at half the size of Phoenix, you are talking about the same growth rate! Now has 15,251 listings as of 1/10/06. (Taken from BubbleMarketsInventory.com. We saw a 50% decline in the 90's and we will see it again.

Angela

Robert Coté said...

Keith B;

My cousins used to live at the ass end of the universe on the south side of Squaw Peak at the outer edge of this little suburb called Scottsdale. That was 23 years ago when the roads were not all paved. Man, Phoenix has grown beyond my capacity to understand.

Anonymous said...

BubbleMarketsInventory.com This site doesn't come up. Last I checked Riverside had 1300 single homes in the market. No 15,000 numbers here. This is from realtor.com. What is the correct spelling of your site?

auburn said...

Washington DC is ridiculous. A 1932 row house needing 100k worth of work is going for 750K

Anonymous said...

Robert said "Any water war of CA v NV v AZ, Las Vegas loses. CA allows non-indian gaming, LV loses."
---------------------------------
California has a socialist legislature that is unkind to business; therefore Las Vegas has already won. And they will continue to win as long as uninformed California voters elect nut jobs.

Somehow, somewhere Las Vegas has become the big target for the housing bubble, and I definitely don’t deny that one exists there, but it is no where near the same as Orange County or San Diego. Las Vegas still has thousands that flock there every month to work for corporations or establish start ups. The only new jobs in OC are mortgage related, which makes it an even larger target for the housing bubble. Incomes in LV are increasing at twice the pace as they are in So Cal.

Too many people are overlooking the demographics and the restrictions when evaluating Vegas. Here’s a tidbit from Prof. Schiller’s book, “Irrational Exuberance” 2nd edition ~ page 23. He’s comparing Las Vegas to Phoenix … which are polar opposites. Phoenix is going to get clobbered, Las Vegas is not.

“The abundance of land is most striking in Phoenix. When one arrives at that city by air, one sees from the airplane vast expanses of undeveloped land surrounding it. Moreover, one learns that despite being part of the desert, Phoenix has water supplied by the Colorado River and has low water rates as well. Appearances can of course be deceiving. One gets that same impression of vast available land surrounding the city when one visits Las Vegas, but in the case of Las Vegas that land is owned by the U.S. government, and its Bureau of Land Management has been reluctant to release much land for development”.

Anonymous said...

In Sacramento we purchased a house for 147k in the year of 1999 and sold it for 285k in '03. In the summer of '05 I heard that those kinds of houses were selling for 350k and more.

foxwoodlief said...

Vegas does have a land shortage (I was stationed at Nellis in 1991) and they say will be built out in less than ten years and people have been hopping across the river into Arizona to buy land at ridiculous prices to accomodate those bedroom communities when that happens so in a sense Arizona and Vegas do have similarities. Tempe is a city "built out" so can only go up. The valley does have lots of BLM, Federal, and Indian lands within its borders so essentially the center of the value is approaching a build-out. Land on the fringes will always be available...as in Vegas for those willing to COMMUTE. Vegas is just ahead of Phoenix in understanding that if it has a future (and ugly one as far as I'm concerned since it is a plastic city) is up.

As long as Arizonians allow the Real Estate Industrial complex to control it's future then they will continue to sprawl out in every direction until the quality of life degenerates to the level of Southern California, minus being as old and run down. The central city will become denser and go vertical but unless more private development enters the market no one knows what the city will look like ten years from now. I suppose with enough tax payer money to build a new biotech center, medical college, expand ASU etc downtown eventually homes will follow and then maybe a vibrant urban environment but without controlling the Real Estate industry that may never happen. Oh imagine if growth boundries had been imposed ten years ago and if say only10% of all house permits were required to be infill what a vibrant, economically diverse city Phoenix could have been by now with maybe 50,000 new units in the center of the valley instead of out in the burbs.

As far as Texas...beware! Though I have a vested interest since I'm moving in March into my new home in Austin I have no delusions that my move is connected with a strong belief in joining a "new bubble" in Texas. I hope not. I don't want to see happen to Austin what I've seen happen in my previous states of residence, Florida, California and Arizona. In all but those desired locations Texas real estate should remain a place to live and not invest and if a home owner can see appreciation at the rate of inflation they'd all be happy!

But, there is plenty of land in most parts, wide, open land, especially around Dallas and Houston. And at the projected rate of growth those two behemoths will be like NY city and LA in 20 years so there goes quality of life (if they had it to start with). The hill country is where all Texans yearn to retire. That being said it will take a long time to ruin Austin since the metro area (extending more than forty miles in every direction) only comprises 1.4 million people. Austin is starting to go vertical and even if they were ever to start building 30,000 houses a year it would take more than the years I have left to become "too big".

Also, like California, price is meant to keep some places from changing. Do you think if you could buy a house in San Jose for $350,000 or the equivalent (size, quality) in say Dallas that everyone wouldn't be moving to San Jose? Well the same for Austin. The prices are the highest in Texas for a reason...to keep everyone who can't afford to move there to move to Houston or Dallas instead!

I guess it is like going out to dinner; you can buy a hamburger at McDonalds if you want inexpensive or you can go to Christopher Ruth Steak House. Both will feed you and satisfy your hunger but for those with "cash" do you think they'll settle for a cheeseburger? They will pay $200 for dinner instead of $8 becaue they can and value alone doesn't really matter. Guess that is why some will pay millions to live in La Jolla and other's won't pay $25,000 to live in South Dakota.

It is only a bubble if you can't afford it.

000000000000000000000000000000000000 said...

Rural California...

Riverside
San Bernardino County
Bakersfield
Central Valley
Central Coast
High & Low Desert

Big ticket areas with NO GOOD PAYING JOBS! Prices Way over Median, many low low rents!

worldgonenuts said...

Please folks...
There are Californians and there are Arizonans.
My family has been in Phoenix since 1956 and have learned one thing for certain. Anyone who refers to residents within the state of Arizona as "Arizonians" is unfamiliar with the territory and is trying desparately to blend.
They usually either produce a cheap tire for Discount Tire Corporation (The Arizonian) or they have swooped into the state within the past 36 months and have caused at least one real estate bidding war somewhere in the North Central (Phoenix) corridor! "Asking price?, they ask, "Heck no, would you accept 130 over, in cash, while I juggle a bridge loan between my other twelve card house "investments?" LOL

Anonymous said...

Just drove down I-55 to the Cracker Barrel Restaurant in Romeoville. Romeoville/Plainfield/Joliet until the bubble collapse were the hottest areas in Chicago for the "ticky tacky" style starter houses and condos. There are thousands and thousands of these houses and condoplexes just waiting for a tornado. (This area is in Chicago's tornado alley.) All along I-55 there were billboards touting these developments. NOW for the first time one sign is offering 1000 in CASH up front to help you do the deal!

As you drive around in this area new and budding developments are everywhere! Oh that flywheel effect!

outtahere said...

Seattle. House prices here have at least tripled in the past 7 years.

Needless to say, incomes have not.

Marty said...

I vote for LA (and it's many spillover communities) as the biggest bubble. Yeah, yeah Phoenix, Vegas...

Where else but LA can you look at a 500k, 600k, 700k sh*tbox and be completely repulsed at what you get for the money. In other "bubbly areas" that would still buy you a luxury dwelling.

Granted prices in the Bay area are just as high - BUT in the LA bubble you can spend 700k and still need to wear a bullet proof vest when you walk outside to pick up your newspaper in the morning.

Wes D said...

Tampa, FL: (orlando below)

The only things left resonable are shitty neighborhoods where your car will be up on blocks in the morning. Houses are being built as far as Brooksville and Spring Hill which is an hour drive to downtown on a good day. Anyone who says it's 30 minutes to Tampa is meaning from their house to the Veterans parkway, which is a good 30 minutes from downtown.

The area around Brandon is being plowed over to put up shitty tract homes. The real problem is that unless you work in the call centers at Progressive or Citigroup or in some of the retail estabilshments (Brandon mall) which are all minimum wage jobs, you will be driving through Tampa. Not to downtown, but more like through it to the westshore business district which is a good 45 minutes with traffic.

The best area to live is the Westchase area which is ungodly expensive. This market will have to dive by at least 30% to correct to the mean value. Never mind we're just one hurricane away from becoming a present day New Orleans.

Orlando, FL:

Same problems as Tampa except with less professional work. Lots of work playing comics and costume wearer at Disney. Lots of work in restuarants making $14-15 an hour as a waitress dealing with asshole tourists all day. Plenty of land too - people are starting to build out in the swamps which certainly proved deadly during Hurricane Charley.

The only nice areas of Orlando are around the airport and Winter Park and Lake Mary. Sanford is okay too if you avoid some certain areas. Dealing with the locals is one step away from a modern day "Hee-Haw".

The newfound novelty in the Orlando market makes it the weakest one in the state. At least Miami does have tons of retirees, lots of people wanting to live there and real work with many international companies having south American headquarters located in the area.

Anonymous said...

Sorry for the incorrect link. This site showes Riverside County with over 15,000 listings according to ziprealty.com. http://bubbletracking.blogspot.com/

Angela

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