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http://biz.yahoo.com/brn/060313/18280.html
10 bubble busters -- values expected to decline
Las Vegas What goes up must come down. Fortune lists Las Vegas dead
last in its list of 100 metro markets for housing appreciation in the
next two years, predicting a two-year combined decrease in housing
values of nearly 13 percent. Local Market Monitor reported a 33 percent
increase in appreciation between 2003 and 2004, and then a 14 percent
increase by the third quarter of 2005, evidence that prices have begun
to cool.
"Las Vegas is a very interesting market," Winzer says. "A lot of people
moved in, but construction has kept up with the pace. For a long time
until recently, I didn't consider it an overpriced market. I do not
think the price increases will last. There's really not an inability to
produce new homes out there if there is a demand for it."
Sacramento, Calif. We're not quite sure what Sacramento ever did to
anyone, but it showed up on just about everyone's list of has-been
markets. Winzer's Local Home Value Ratings rates the market as 59
percent overvalued and Burns Housing Cycle Barometer also lists it as
overpriced.
"Sacramento, we think, has topped out," says Gollis of The Concord
Group. "There is just so much (housing construction) in the pipeline.
It's a steady-as-she goes market and has always had consistent growth,
but we think the land market has gotten ahead of itself."
Phoenix The bigger they are, the harder they fall, and Phoenix is the
largest housing market in the country in terms of new construction.
It's been running at 65,000 new units per year, with housing
appreciation increasing at rates of nearly 30 percent per year.
"You cannot sustain 30 percent increases a year for very long," Winzer
says. "Of all the 100 markets we review, we think if you're an investor
in Phoenix, you should sell, because vacancy rates are already pretty
high." Gollis says his firm has been studying the market carefully and
doesn't like what it sees. "It's had an incredibly unusual amount of
growth," he says. "The land market has accelerated dramatically and the
lot price as percentage of the home price has gone up significantly. We
have some concerns about going long in Phoenix."
Boston This one is in Winzer's backyard, his firm is based in
Wellesley, Mass., so he sees what is happening there every day.
"Until about a year ago, homes would go on sale and be gone in a week,"
he says. "Now they're sitting on the market for a year." He doesn't see
the prices dropping rapidly here -- or in any market, for that matter
-- because while real estate prices escalate rapidly, they drop slowly.
"In markets that are well-overpriced, prices do not really fall because
people just won't sell," he says. "The adjustment mechanism is skewed
by people's emotions getting involved. People will grit their teeth and
hang on as long as they can to get the price they want."
They might not be able to hang on for long. Burns ranks Boston fourth
on his list of markets likely looking at a bubble; Winzer's analysis
indicates the market is 33 percent overvalued.
Los Angeles The City of Angels has been described as the poster child
for how a lack of new housing near employment centers can hurt an
economy. Affordable housing has been an issue in the market for years.
It's ranked as one of the least affordable places in the country to
live, with housing prices consuming 91 percent of income, according to
statistics from John Burns Real Estate Consulting. The median price of
an existing single-family home was $568,000 at the end of 2005, the
National Association of Realtors reports. Plus, job growth is virtually
flat. Together, it's cause for real estate market consultant Gollis to
predict that the prices for California coastal markets are topping out
in single-family homes. Fortune predicts a drop-off of nearly 8 percent
in housing prices in the next two years, putting it in 95th out of 100
markets for growth.
Naples, Fla. At 72 percent, Naples is No. 2 on Local Market Monitor's
list of overvalued markets in the country (Santa Barbara-Santa Maria,
Calif., is No. 1 at 86 percent overvalued). In actual pricing, it
outpaces other Florida markets by a good $100,000 margin. Plus, there
is an abundance of more affordably priced options for buyers within a
short driving distance. It is no understatement that entire cities are
being built nearby. "The markets that are the most overvalued are the
ones at greatest risk of a substantial correction," Winzer says.
"Naples is at the top of that."
Miami/Ft. Lauderdale, Fla. Rapid, dramatic price increases over the
past two years -- and an extraordinary amount of new products being
built in the condo market -- is the reason many real estate market
analysts think this market just cannot sustain much more in terms of
price increases. The market probably won't decline, they say, because
the region remains attractive to South American and European buyers,
but there just is not sufficient demand to absorb the entire available
inventory. Plus, according to NAR research, affordability is an issue
in the market, calling the home price to income ratio "unfavorable."
Edison and Newark, N.J. As far as the real estate analysts are
concerned, these two cities have pretty big targets on them for a
decline in appreciation. John Burns Real Estate Consulting ranks Edison
seventh -- ahead of Los Angeles, Miami and Washington, D.C., -- as a
market facing a potential housing bubble. It gives Newark an F on its
local market grading scale, attributable largely to the loss of several
thousand jobs and the highest housing-cost-to-income percentage in the
state's metro markets. Fortune predicts a very modest 1.2 percent gain
in housing appreciation this year for Edison that would be wiped out in
2007 by a loss of 2.9 percent. The situation is similar in Newark,
where Fortune suggests a 1.5 percent increase this year will be
canceled out by a 1.8 percent loss the following year.
Nassau/Suffolk, N.Y. Otherwise known as Long Island, this market is No.
2 in the country on real estate consultant John Burns' list of
locations facing a potential housing bubble. (Modesto, Calif., has the
top spot.) Similarly, Fortune predicts a loss of about 6 percent in
housing values over the next two years.
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