8/19/2005

Home prices 'extremely overvalued' in 53 cities - Yahoo! News

Single-family home prices are "extremely overvalued" in 53 cities that make up nearly a third of the overall U.S. housing market, putting them at high risk of price declines, according to a study released today.

The report, by Richard DeKaser, chief economist of National City Corp., examined 299 metro areas accounting for 80% of the U.S. housing market. (Chart: High-priced housing faces risks; 299 metro areas ranked)

DeKaser terms a market extremely overvalued if prices are 30% above where he estimates they should be based on historic price data, area income, mortgage rates and population density - a proxy for land scarcity.

Based on those criteria, Santa Barbara, Calif., is the nation's most out-of-whack market, with houses 69% overpriced. Rounding out the top five: Salinas, Calif.; Naples, Fla.; and Riverside and Merced, Calif.

College Station, Texas, is the most undervalued, priced 19% below where the data suggest it should be. Other inexpensive communities include El Paso, Odessa and Killeen, Texas, and Montgomery, Ala.

The highest-risk markets are in California; Southern Florida; parts of the Boston area; the Long Island, N.Y., counties of Nassau and Suffolk; and Ocean City, N.J.

The big culprit: in 85% of the cities surveyed, home-price gains outpaced income gains during the past year. In Bakersfield, Calif., prices rose 33% while incomes increased 3%. In 29% of areas, prices outpaced income growth by at least 10 percentage points.

Just 2% of markets were in bubbly territory at the start of 2004, vs. 31% in the first quarter of 2005.

1 Santa Barbara, Calif. 69%
2 Salinas, Calif. 67%
3 Naples, Fla. 62%
4 Riverside, Calif. 60%
5 Merced, Calif. 59%
6 Stockton, Calif. 58%
7 Port St. Lucie, Fla. 58%
8 Madera, Calif. 57%
9 Napa, Calif. 57%
10 Medford, Ore. 55%
...
91 Chicago, Ill. 19%

Home prices 'extremely overvalued' in 53 cities - Yahoo! News

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