Thursday, August 11, 2005

Bubble Watching

The housing bubble has certianly affected many locales. But there are certain places that I'll be particulary watching for stagnation and price declines. Here is my list of bubble places I'll be closely watching:

  • San Diego
  • Las Vegas
  • Bakersfield
  • Miami
  • Boston
  • Washington, DC ( huge price appreciation, strong fed related job growth)
What is you list? and Why?


  1. San Diego has a great climate, but household median income cannot afford 500K homes. Las Vegas has rapid growth, but low paying jobs and over speculation-cannot be sustained or even maintained. Bakersfield has a high unemployment rate, super speculation- big bust coming. Boston has low job growth, correction of at least 20%. Wash DC- sure high job growth for now- but much speculation, and dangerously high prices- at least a 20% correction.

  2. I forgot Miami- speculation very high, low median income regionally- housing is too high, due for a big correction.

  3. What about NY? People here think they're insulated from the bubble effects because, well, it's NY.

  4. All blue states. Quite ironic when you consider they voted for Kerry.

  5. And that exactly what to do with it?

  6. Throw in most of the San Joaquin Valley even the commutable areas of Stockton and Modesto..The flippers will find out that few people will be able to buy @ 350K plus when interest goes up and when they stop giving out mortages like a "crack Whore" needing to score the next fix..

    John in FresYES

  7. These are not the only bubble markets, rather they are just markets that I am focused on.

  8. I'm focused on OC because I live there. I've noticed that the inventory at has been
    slowly ticking upward. Maybe, we've reached the peak in OC.

  9. Florida did not vote for Kerry, and it has among the highest rates of price rise and speculation. AZ and Nevada also doi not vote for Kerry- and they also are seeing crazy price rises and speculation- politcs aside lets be sure we get our facts straight.

  10. I am a believer in the housing bubble, in general. In my opinion, it is hard to see DC taking that big of a hit. This "war on terror" has created an insatiable need for cleared personnel. This competiton is driving up the salaries in the area, as these folks do not grow on trees. I live in Annapolis and it seems every other day they are announcing another 1000 jobs being created in the area.

    The fact is that DC has always been more recession proof than other areas of the country- the government will get there money one way or another

  11. IN DC---even still, the median income is $80,000/year (that may be a high estimate). So median homes should not be more than 3x that...$240k. There is not much here for that, other than 1br condos far out or in the ghetto.

  12. I am (rather we) are sitting on about 20 listings right now. About 1/2 of them are over 90 days old. They aren't moving. Put simply - there are no buyers for these homes. I have said many times that I think we are tapped out in San Diego. One house on the beach asked for $1million and now 90days later they are trying to eek out $860K (the listing expires on Sat). Only 2 years ago this house along with all the others would have been gone in 2 weeks, some as soon as the post went up. Yet, how do you explain the fact that I was just handed 4 new listings this week? I am getting nervous, and wonder when this whole pot will come to a boil.

  13. I want to buy the house on the beach. How do I see the listing?

  14. I live in Bakersfield. This is bubble city. Every-asshole in this town thinks he is a RE millionaire. Thats all anybody can talk about in this town! There will be some very surprised people in a few years/months/days when this thing bursts. Homes in my neighborhood are $400k above what I paid. Shit I couldn't afford to live in this neighborhood if I was buying now.

  15. My list?

    1. Silly Valley
    2. Sacramento
    3. San Diego
    4. Las Vegas
    5. Boston

  16. Another place to add: San Francisco Bay Area, Sonoma, and Napa counties. We've seen a roughly 50% price gain in these areas over the last 5 years.

  17. Re: "I want to buy a house on the beach"

    If you want to see the house online then please email me and I will send you the link. I don't want to be another victim of 'corporate eyes' seeing my post and then having to defend my position in the unemployment line. You understand, I think.

  18. DC is at the top of my list - I live here. I work for the government, too. I also remember when you couldn't give real estate away, in the mid-90's, in DC. There was a run-up in the late 80's, just like now, except no where near as big, then a big bust. Funny thing, the government was here then, too. So I don't buy the argument that it can't happen here. And it already seems to be starting....inventories are way up....

  19. What about Phoenix, AZ and its suburbs? Real estate appreciation rate is almost as high as in Las Vegas combined with lots of speculation by out of state investors. Low income jobs, plenty of land, this all does not justify a 40-50% increase in house prices a year. However, Phoenix almost never shows up on the list of hot bubble regions.

  20. Phoenix, and even Tucson are becoming dangerously overpriced, with rampant speculation. I agree it should be on lists exposing this growing bubble. As for the Washington DC area- I agree with the idea that government employment will not save this regions silly and outrageous housing cost from falling.
    There will be in time, a serious correction in the Washington area, in Maryland and Northern VA.

  21. As for DC, the post-bubble bust in the early 90s was not as bad as in CA or Boston. This was the period of post-cold war downsizing of the federal government - under Clinton the federal workforce shrank for the first time since the WWII drawdown during. Also much of the current GWOT expansion is being outsourced to the privite sector - this is bad if you are a clerical or security guard, but great if you are a manager or tech person - the pay tends to be higher than civil service scale.

  22. Northern VA will take a beating, especially the areas that are more than 25 mi from DC. You have people in little dingbat towns like Purcellville (50 mi from DC) listing tiny, 40 year-old beaters like this one for over $500K. The place is overrun with flippers and there's new construction everywhere. It's insane.

  23. I agree that DC region is in for a correction. They're building houses faster than new jobs are being created, so there isn't a shortage of housing. The runup in price is all speculation, not low supply.

  24. I did a simple "bubble cities" piece recently for work and came up with the following "top 10" overvalued cities. (The universe was the 100 largest metro areas/divisions.)

    San Diego
    Orange County
    West Palm Beach
    Ft. Lauderdale
    San Jose
    San Francisco

    These markets were arrived at by a combination of how affordable they currently are and how far this affordability is from post-1984 norms. As expected, So. Cal and Florida are well-represented. Boston is not here (#19 on my list), but that may be because the post-1984 period contained a much worse bubble than some other regions, which would make the "deviation from average affordability" measure less valuable.

    Predictably, everyone's list is wildly different...the PMI people recently had a top 3 ("markets most likely to decline within two years") of Boston, Long Island, and San Diego, while Merrill Lynch actually had Miami, Minneapolis and Chicago at the top of theirs. (ML did not really consider relative affordability, so I don't really buy these as a top 3.) San Diego always seems to be near the top of these lists, though.

  25. nice analysis. thanks for the post

  26. Phoenix without question.

    1 out of every 3 dollars in it's economy is generated by construction and the RE market.

    Mean income 7% below the national average. Highest high school drop out rate in the nation. Arizona has the highest crime rate in the nation.

    Low wages & low future jobs outlook.

    Median home price is $240k and it's scary to see what that buys you. Ghetto!!!

    Throw in the extremely high number of welfare recipients and methamphetimine addicts and it makes a nice recipe for economic disaster for any who are playing the RE game(including HELOC) right now.

  27. Reno always seems to fly under the radar on the housing bubble blogs. Maybe it has been overshadowed by Vegas, but take a look at the price appreciation in Reno over the past several years. Comparable to the more well-known bubble areas. Reno gets the spill-over from northern California, so as those markets go, Reno will follow shortly.

  28. Yes Reno Nevada is overpriced-
    bubblemania here being inflated by those escaping California.

  29. Definitely add Sonoma:

    Only 7 percent of households could afford a median-priced home in Sonoma County at year’s end compared with 12 percent a year ago. "

    Sonoma County household needed a minimum income of $152,595 to buy the typical home, based on prevailing interest rates for a 30-year mortgage. A year ago, the minimum income needed was $124,650.

    Average Household Income

    Median home price: $618,000

    Buyers had to increasingly stretch financially to purchase homes.
    A majority turned to interest-only and other adjustable-rate loans, often making little or no down payment when purchasing homes.
    Adjustable-rate mortgages accounted for 69 percent of loans to buy Sonoma County homes last year and only 31 percent were 30-year, fixed-interest loans - a reversal from just two years earlier.”

    Current data:

    According to the GMAC MLS listing service there are 200+ listings for sale in the 95476 zip code. More than 4 times typical inventory.

    Single family homes + duplexes/condos: 172

    Just for kicks here is a little sales comparison:

    Homes sold first 7 weeks of 2005 = 67
    Homes sold fist 7 weeks of 2006 = 56

    of the 172 current listings 45 have made price reductions, some seem serious, and some seem woefully out of touch as their gold mine languishes on the mls.

    (courtesy of 2/14/06)