Tuesday, June 28, 2005

Bubble Cities

So where are thes bubble cities we talk about? Where is the froth that Al Greenspan has reluctantly acknowledged? Here is my list of the bubble cities (cities where price declines are likely be greater then 20% over the course of 3 years (inflation adjusted )):

  • Bakersfield
  • San Diego
  • Merced
  • Fresno
  • San Francisco
  • Pheonix
  • Las Vegas
  • Reno
  • Sacramento
  • LA
  • Portland
  • Miami
  • Naples, FL
  • Tampa Bay, FL
  • Daytona Beach, FL
  • Jacksonville
  • Boston
  • NYC
  • Baltimore
  • Philadelphia
  • Providence
  • Honolulu
There are more bubble cities that are not on this list. The other unknown variable is that once the housing bubble starts bursting in the bubble cities, the economy is highly likely to spin into a recession. That could cause price declines even in non bubble markets.

28 comments:

  1. What's your basis/source/data for choosing those cities. Did you just pull them out of thin air?

    ReplyDelete
  2. Based primarily on the OFHEO study on housing appreciation in major metropolitan areas.

    ReplyDelete
  3. How does Seattle rank on the bubble meter?

    ReplyDelete
  4. Seattle has appreciated 38% in the past 5 years according to the OFHEO government report. Does this make it a bubble city? Seattle prices could fall slightly ( about 10%) if there is a recession. Otherwise I expect price stagnation there.

    ReplyDelete
  5. Another "bubble" city: Bridgeport Ct. where prices have doubled and trippled in the past 36 months.

    ReplyDelete
  6. The rapid and persistant rise in real estate prices is troubling.

    New Jersey Home Inspection NJ

    ReplyDelete
  7. Please tell me that the DC Metro area is in a bubble. It isn't as hot as Baltimore?

    ReplyDelete
  8. DC is a specail case due the tremendous job growth occuring here. There has been a huge increase in the number of high paying of government related jobs.

    ReplyDelete
  9. David, I thought the P/E ratio in DC is also way out of line, no?

    ReplyDelete
  10. The P/E ratio is certainly high in DC. However, the population is booming here and there job situation is tremendous. Lots of high paying government related jobs. DC is a unique RE market for just that situation. I think we are more likely to see price stagnation then price declines in DC (IMHO).

    ReplyDelete
  11. Our Alexandria townhouse (DC Metro region) has increased $100,000/year for the last two years. I can't imagine that there is enough population and wage growth to make that sustainable.

    ReplyDelete
  12. There is no way that the 100K a year increase in a value of an Alexandria townhouse is sustainable. However, if these factors continue then the current valuation is sustainable:

    1) Growing DC Metro Area Pop
    2) Job Growth in DC Area
    3) Mortgage Rates remain low

    ReplyDelete
  13. "Census Bureau figures released earlier said the District and Baltimore have continued to lose population, as they have every decade since the 1950s."
    http://www.washingtonpost.com/wp-dyn/content/article/2005/06/29/AR2005062902663.html

    ReplyDelete
  14. Good point. However, I said "DC Metro Area" which includes the suburbs.

    ReplyDelete
  15. It seems to me that would only be valid if the prices had been stagnating in the District, and booming in the suburbs. Both are experiencing very fast growth. I think that the whole DC metro region is in a bubble, whether people want to admit it or not. Every location has a a reason that it's different - the oceanfront, lakefront, good weather, retirement destination, etc. DC region will correct with the other boom areas.

    ReplyDelete
  16. In a debt deflationary scenario, I doubt that any market can escape a crash.

    ReplyDelete
  17. Of course, San Jose is different, too. ;)

    ReplyDelete
  18. San Jose is part of the San Fransisco MSA (Metropolitan Statistical Area). You are right San Jose is definitely a bubble market.

    ReplyDelete
  19. Can you post a link to the study? I can't seem to find it on http://www.ofheo.gov/

    ReplyDelete
  20. Here is the most recent OFHEO housing study by metropolitan areas and states.

    http://www.ofheo.gov/media/pdf/1q05hpi.pdf

    ReplyDelete
  21. Thanks david! Keep up the good work.

    ReplyDelete
  22. Thankyou very much for adding jacksonville, fl to this list. I moved here 3 yrs ago and at that time houses were pretty cheap like for 120K dollars u could get a beautiful 1800-2000 sq ft house in probably the best neighbourhood in this city. Now believe it or not, but that same house is selling for 300-350K. However my rent was 700 then now its 720 for a two bedroom 1200 sq ft apartment in that same neighbourhood. We started looking for a house but then it felt too risky here since we will have to move in two three yrs.Theres no reason for this kind of appreciation here nothing to do after 8 no big jobs moving here nothing. I dont know why this is happening?

    ReplyDelete
  23. You might now also add Hartford and New Haven CT to that list. The state of Connecticut was listed as one of 15 markets with bubble like conditions.

    ReplyDelete
  24. Not a major metro but. You forgot St George UT. It will implode here. Major employers: Construction, real estate, service. Home price driver: relocating retires, flipers, 2nd homes. Now the for sale signs are going up faster then the homes. Builders are selling inventory land and equipment. Realators lowering commissions to the bone. Its looking bad for 2006.

    ReplyDelete
  25. don't forget melbourne (Viera) Florida. Home prices have doubled in one year. Wages are very low here, not much job growth. What a joke, go figure.

    ReplyDelete
  26. Philadelphia?! Sorry - on this one you straight up don't know what you are talking about. The overall market in Phily is not out of line at all when compared to average income and average rents - actually it is below average. Center City Phily is damn cheap when compared to any east coast city (DC, NY, Boston. It is by far the cheap hood on the east coast. Further, Phily has only recently come alive in terms of building. It is not over built. In comparison to other similar cities it is probably a good 10 years behind the curve in terms of trends such as City service improvements, empty nesters moving back in and recent college grads and newlyweds opting to stay in town (all of which are now moving in a positive direction). The city is recently trending up, though behind the curve of most eastern and midwestern cities that saw major growth in the 90's.

    What all this points to a is a city where there is no statistical basis for a "bubble" and the city is trending up with some solid future potential.

    Phily is not like Chicago Loop where investers make up a substantial percent of the market(notice I said Loop and NOT the north side - these are two very different markets and should be analyzed as such. Nor is it like San Fran where it takes 8+ times the average salary to buy the average house. Those cities you can argue possible bubble and definite bubble.

    It seems to me that you list cities based on random media reports without looking in any depth what has been going on in the market.

    Further you seem to damn whole cities without understanding how distinct areas within a metro area work. For instance in Chicago the Loop is a very different market than the North Side which differs from the North Shore... What may seem like a bubble in one area of town may not pan out at all in other areas. For instance in the early 90's recession the high end Chicago Gold Coast market took a beating, but the lower end northside lakefront markets kept marching along.

    Look closer because listing Philadelphia is just flat wrong. Go back to the drawing board and do more homework.

    ReplyDelete
  27. What about Essex COunty in NJ?

    ReplyDelete