CNNMoney: Home prices get even more overvalued

[DeepModem Mom]

Home prices get even more overvalued
Housing markets have cooled a bit, but not before prices got even less affordable than ever.
By Les Christie, CNNMoney.com staff writer
January 23, 2006: 11:21 AM EST


NEW YORK(CNNMoney.com) - Although many overheated U.S. housing markets lost steam during the third quarter of 2005, most still grew less affordable.

That's according to the Local Market Monitor, a real-estate market research provider.

Through the third quarter of 2005, 79 of the 100 surveyed markets had gotten more expensive, relative to what Local Market Monitor calculates as fair value.

At the top of the list for overpriced cities was Santa Barbara, Calif. at 86 percent overvalued. The average home there should cost $308,900, according to the Local Market Monitor. Instead it sold for $573,100. The survey found that only 16 of the markets had gotten less expensive.

Overall, 37 markets were found to be severely overpriced, which meant that they were at least 15 percent more expensive than they should be, and only 6 were underpriced by 15 percent or more. Fifty-seven were deemd to be farily priced....


http://money.cnn.com/2006/01/23/real_estate/most_markets_more_overpriced/index.htm?cnn=yes

[Warpy]

1. I'm stunned at what this 3 bedroom tract house

on a barrier island off the east coast of Florida was appraised at. It was built in 1963 and redecorated in 1973 and hasn't changed since.

Why the hell anyone wants to live in Florida is beyond me, but 2 houses on this street have sold in the 2 weeks I've been here.

[ananda]

2. I just go into shock and awe..

.. every time I drive around and see all the expensive homes and condos around.

I keep thinking.. where is all that money coming from? How do so many fucking
people afford so much fucking real estate? And it's a LOT of them.

It hurts ... I can hardly stand to see so many quaint neighborhoods being ruined
by developers who buy up the original homes and replace them with those ugly
big boxy things that take up too much space for the lots.

Sue

[cosmicdot]

6. likewise ...

what is it that these people do do who are buying these places? where are they flipping burgers? ... there must be a heckuva lot of corporate executives in this country ... and, I thought the 90s downsized (gutted) middle management ... many people had to accept lower paying jobs to be employed, etc.

... it seems that most of the new housing (if not most all) have 'coming soon' signs with the word "Luxury" on them ... New Luxury Houses ... starting from the low $800,000s ...

... knowing the state of the economy and the personal debt in this country, it confounds me ...

[Yavin4]

27. "what is it that these people do do who are buying these places?"

To answer your question, they are speculators pure and simple. They buy these properties with little or no money down, and then they flip them, use the profits to put down on another house, repeat.

This is all well and good so long as interest rates are low. People with decent credit can get favorable loans. This is just one big debt financing game.

[wordpix]

9. It's the ruination of America, the ugliness sprawl of suburbia

[barb162]

15. inheritances, help from parents help a lot

[Lorien]

18. That's what's happening in my "historic" neighborhood

because it's Florida, there's no historic preservation. So lovely little 1920's Craftsman bungalows are bulldozed in favor of monstrous tissue box McMansions that seem to nearly burst out of their lots, and look entirely disproportionate next to all the other homes in the area...that is until THEY get bulldozed. Then our "historic" neighborhood will look like every other McMansion development in Florida. :grr:

[smirkymonkey]

28. That's what baffles me - are there really that many people out

there who are able to afford these places?

[pokercat999]

29. I just moved to the Charlotte, NC area. Full of neighborhoods

with McMansions on quarter acre lots looks stupid.

[David Zephyr]

3. A home is still a better investment than the stock market.

Here's why:

The Stock Market still has most American workers scared to death after the big drop (it's still not near where it was in 1999 and 2000).

Mortgage interest and property tax can be written off from gross income by workers. So diverting it into a home rather than just giving it to Uncle Sam makes sense across the board.

Low mortgage rates. Even though rates are not at the rock bottom bargain that they were just a year ago, they are still at unbelievable historical lows (typically 5% now). (I bought my first home with a buy-down rate in the 1980's at the very low (for then) rate of 11%.)

A home is "real" estate. You get to sleep and live within your "investment".

I don't know if it's still a "good time" to buy and/or if there will be some correction down the road, but the American dream is still for everyone to own their own home. It looks like some markets are getting to be "overbuilt" with new homes, but in a great part of the country the demand still far outstretches the supply.

And if some areas of the country have a "bubble" due to the greedy speculation by over-zealous builders, well then a correction in those areas --- or even a burst of a bubble --- will be a good thing for those who may be wanting to buy, but just can't.

I don't think there can ever be enough housing in the U.S. until every man and woman can own their own place. So if there's "overbuilding" in some areas, then it might also turn out to be a good thing.

Personally, I think that even "rent" should be a deductible permitted by the IRS. Our former Governor Jerry Brown, out here in California, has long stated this. I think he's right. It only seems fair to me.

[megatherium]

13. Supposedly, the population of the US will increase by 70 million in the

next two decades. I think it was Mark Twain who said that real estate is a good investment because God isn't making any more.

But of course I live near Louisville, Kentucky, in a mid-70s brick ranch (two car garage, 3 bed, 1.5 bath, finished basement, decent neighborhood 12 miles from city center). Probably would sell for less than $140,000. The insane real estate markets are very localized, mainly on the coasts.

[Maine-ah]

22. we bought our house in 2001

it was appraised at 95k. Built in 1974, untouched since. We just refied a couple of months ago and it was appraised at 135k. No landscaping, need a new roof, and the interior is still screaming for attention.

[megatherium]

23. bought mine in 1999 for $117,000. nt

[Robb]

25. Twain on real estate:

"No real estate is permanently valuable but the grave." ;)

[1932]

30. Irratiional Exuberance: avg rate return on real estate over long term:1%

[lovuian]

4. California is ridiculous... little houses worth 2 million dollars

but as they say Location Location Location...

[wordpix]

7. it's the same in CT 1 to 2 hr. from NYC

[MannyGoldstein]

5. Mass. Prices Plunging

Prices in my neighborhood, an upscale suburb next to Boston (Newton), have dropped something like 15% in the last year or so. Boston's probably the first to go as it's the most nonsensical housing market in the country.

[papau]

12. Hi neighbor - sales in my area of Newton have not dropped price -

but some folks have taken houses off the market.

I expect spring 06 pricing to be between 95 and 105% of last spring (which may be a drop of 10% from last falls prices)

Maybe I am not looking the price trend in the right market - I'm told the well over one million market (which is not my market) has indeed dropped perhaps 15% from the highs of the fall of 05.

[MannyGoldstein]

17. I'm in Newton Corner

In the last year or so, only two houses sold of the eight or so houses for sale within a couple of blocks of us, for roughly 20% off of original asking price - that's why I figure down 15%. Both started at 850, went down under 700. (Which is still nuts)

[midnight armadillo]

31. Howdy neighbors! Over the line in Waltham...

There's a lot of houses for sale in Waltham, Weston, and Metrowest with 'price reduced' on their For Sale signs. I'm not buying til 2009 (saving $, eliminating debt) but I think that higher interest rates + high heating is the death knell for the housing boom. There are several houses near my apt. that have been on the market for months, which was not seen in years past.

[MannyGoldstein]

19. And Also

If you're in the neighborhood, you might be interested in Beer, LibFlicks, and Pizza

[papau]

24. I'm Newton Lower Falls - at least a couple of miles away! - let me know

when Beer, LibFlicks, and Pizza is scheduled!

[wordpix]

8. this doesn't take into account 4th quarter sales, might be a different

scenario with that

[progressivebydesign]

10. Saw a house in my old stomping grounds, SLO calif.. and nearly died!

It was a 1960 house, 1,800 square feet.. no view, no water nearby, not even downtown... 1.3 million dollars for a tract home. (that's why I don't live there anymore!).

[anitar1]

21. A relative works at SLo prison. He tells me they have lost

100 guards because it is too expensive to live in that area. Rents are ridiculous.

[1932]

11. Wealth dropping faster than house prices so that houses are getting

more expensive relative to how much money people have?

[DemoTex]

14. In the fog and rain, I had two very serious lookers at the mountain house!

Today. I don't want to sell, but the 100-year-old house in Greenville begs money! This house might sell soon!

[Kansas Wyatt]

16. So if the housing values fall and the real estate market pops....

And a lot of people end up upside down and way over their heads, with the bankruptcy laws changed, what happens next?

[MannyGoldstein]

20. Linky

http://en.wikipedia.org/wiki/Great_Depression

(in a few years)

[Heewack]

26. Not much.

It would impact people trying to move, but overall a drop in values wouldn't suddenly make people need to file bankruptcy. If it was long and sustained, yes, but there's nothing to suggest that is a real possibility.

[Roland99]

32. This is the bloated asset price discussed in this Economist article.

Alan Greenspan
Monetary myopia
http://www.economist.com/finance/displayStory.cfm?story_id=5381959

[pitohui]

33. over-valued according to who?

we've had massive destruction of housing units, a good in short supply is rightfully going to be more expensive, no law of supply and demand at their journalism school?

as far as california, no one is making new coastline, no is making a new california, any more than they are creating more land in manhattan, of course the price goes up, the population and the money chasing a limited number of housing units is going up

[XemaSab]

34. A friend of mine just paid

660,000 for a three-bedroom mid 60's house in San Jose.

She makes 40 K a year. :wtf:

[OldLeftieLawyer]

35. Excuse me for prying,

but can you tell more about this particular transaction?

I mean, how does someone earning that salary qualify for a mortgage of any kind?

I don't mean to be rude, but this sounds crazier than almost anything of its kind that I've heard so far.

She's going to rent out the other two bedrooms?

I'm just all confused by this.

Thanks.

[high density]

36. Are you sure? That's like a $4k a month mortgage payment

assuming 5% down over 30 years, not including insurance or taxes... Her income is $3,333 a month, so I don't think any bank would give her that loan, even for half that amount.