What is a Housing Bubble Market? A bubble market is any housing market where there will be a real dollar price decline of at least 20% from peak price over the course of three years. This is for a typical property. In most of these bubble markets, real dollar price declines will continue for much more then 3 years. Most of these bubble markets saw prices double or more over the course of five short years.
Where are the Housing bubble Markets? The bubble markets are located mainly in the following states; MA, CT, RI, MA, NY, NJ, PA, MD, DC, NJ, VA, FL, NV, AZ, NM, CA, OR, HI, WA, CO. Here are some metro areas that are bubblicious.
- Boston, MA
- Hartford, CT
- Providence, RI
- New York City, NY
- Baltimore, MD
- Philadelphia, PA
- Washington, DC
- Virginia Beach - Norfolk, VA
- Miami, FL
- Cape Coral - Fort Myers, FL
- Naples, FL
- Orlando, FL
- Tampa Bay - St Petersburg, FL
- Sarasota-Bradenton-Venice, FL
- Daytona Beach, FL
- Jacksonville, FL
- Tallahasee, FL
- Boston, FL
- Seattle, WA
- Tacoma, WA
- Bend, OR
- Boise, ID
- Merced, CA
- Bakersfield, CA
- Redding, CA
- Fresno, CA
- Modetso, CA
- San Francisco, CA
- San Deigo. CA
- Sacramento, CA
- Los Angeles , CA
- Stockton, CA
- Flagstaff
- Phoenix, AZ
- Las Vegas, NV
- Carson City, NV
- Reno, NV
- Honolulu, HI
Exploding Inventory
Nationally, the inventory of existing homes for sale has increased by 39.1% year over year from 2,678,000 in June 2005 to 3,725,000 in June 2006 according to data published by the National association of Realtors. In the bubble markets, inventory has increased at an even faster pace then the national picture.
In San Diego County, housing inventory started off at 13,916 on January 1st 2006 and has risen by a full 67% and was 23,259
In Los Angelos County, housing inventory started off at 24,463 on January 2nd 2006 and has risen by a full 82% and was
In Sacramento Metro area, housing inventory started off at 9,513 on January 2nd 2006 and has risen by a full 80% and was
In the Phoenix metro area, inventory spiked from 10,748 on 7/20/05 to
In Northern Virginia, a part of the Washington DC metro area, the number of active listings was 4061 in June 2005, which increased by 197% to 12,096 in June 2006 (MRIS).
In the Orlando area, inventory had exploded from 13,533 on January 7th, 2006 to 25,665 on August 21st, 2006 (HousingTracker).
In most bubble markets inventory has more then doubled since last summer. In some metro areas like Phoenix inventory has more the quadrupled since last summer. The inventory is obviously the supply side of the equation.
Plunging Sales
Last year, in the bubble markets housing units were often selling in less then a week with sellers choosing from multiple offers. Now, the average number days on markets has increased dramatically in nearly all bubble markets compared to last summer.
Nationally, new home sales are down 21.6% compared to July 2005 (US Department of Commerce). Existing home sales are down 11.2% (National Association of Realtors).
In July 2005, in the Baltimore metro area the average days on market for housing units that sold was 35. This July, the number had increased to 55 representing an increase of 57% in the days on market. In Baltimore City the number of housing units sold in July 2006 fell 24% compared to July 2005 (MRIS).
"Existing home sales in July continued their year-long downward trend, plunging 44 percent in Palm Beach County and 39 percent in the Treasure Coast, year over year, the Florida Association of Realtors said Wednesday. Statewide, home sales fell 33 percent to 14,451 closings from 21,691 in July 2005, the association said"" (Palm Beach Post 8/23/06)
According to The Warren Group, in Massachusetts, sales of single family residences tumbled 26.9 compared to July 2005. Condo sales are down a similar 23.5% as compared to July 2005.
In Washington DC, the number of housing units sold in July 2006 fell 21% compared to July 2005 (MRIS).
Graph showing the number of home sales plunging in 2006 in Northern NJ.
Courtesy of Northern New Jersey Real Estate Bubble
In Sacramento, CA "Declining demand and buyer hesitancy pushed existing-home sales down 45 percent in Sacramento, Placer and El Dorado counties in July, compared to the same month last year (Sacramento Business Journal)".
The demand from flippers and specuvestors is drying up as the the word gets out that prices don't always go up in the bubble markets. The National Association of Realtors reported "The annual report, based on two surveys, shows that 27.7 percent of all homes purchased in 2005 were for investment and another 12.2 percent were vacation homes" As prices decline in the bubble markets there will be even less demand from the short term investors (flippers) who have been such a large part of the price runup. Plunging sales indicates a strong decrease in demand.
Stagnating & Falling Prices
During the boom years 2001 - 2005, prices for many housing units increased by double digit annual rates. In Washington, DC the median sales price for all housing units increased by 17.45% from July 2004 to July 2005. Then from July 2005 to July 2006 the median sales price has actually fallen by 3.45%.
For July 2006, in most bubble markets, median sales prices increase are less then 8% and in a significant number of bubble markets median sales prices have declined from last year.
In Massachusetts, the median sales price for condos is down 4.2% as compared to July 2005. The median single family residence is down 6.1% compared to July 2005 (Warren Group).
Now in many bubble markets prices are falling as inventory swells and demand declines.
WSJ Chart showing the percentage of reduced price listing on local MLS.
The plummeting demand coupled with the swelling inventory has placed downward pressure on prices. Prices will continue to fall in the bubble markets.
Conclusion
The housing market in the bubble markets will continue to decline of the coming years. As the 2006 buying season comes to a close, inventory continues to pile up in many bubble markets. Sales are down significantly in the bubble markets compared to last year. Additionally, an economic recession in the US is coming within the next 9 months. Real dollar prices declines in the bubble markets are very likely to vary between 20% - 65 in real dollars (inflation adjusted) from peak to bottom (it may take up to 8 years). Most of the real dollar price decline will occur in the first 3 years of the housing bust. Indeed the huge price appreciation that occurred in the bubble markets over the past 5 years or so was a speculative episode. As John Kenneth Galbraith wrote "And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang.
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