Monday, May 14, 2007

Forbes' "Most Overpriced Markets"

Forbes' "America's Most Overpriced Real Estate Markets" combines multiple criteria (thanks, Sacramento Land(ing)):
  • Their "P/E" ratio is based on "each market's median home price ... divided ... by annual rents minus taxes and insurance for those properties."
  • Their "affordability score is the percent of the population who can afford to buy the median-priced home, assuming a 6% mortgage rate."
  • They seem to have looked at both the trends in housing prices and income growth. San Francisco is dinged for already-unaffordable prices plus low expected income growth ahead.

"So which markets are in bubble territory? Look for a high P/E ratio, low affordability, low income growth and a high cost of living. ... The usual suspects littered our list: Miami came in second, followed in order by: Sacramento, Calif.; San Francisco; Washington, D.C.; Honolulu; New York; Los Angeles; and Boston. San Jose, Calif., rounded out the top 10." Here are their details for California cities:

1. San Diego
Median home price: $601,800
P/E: 5th highest
Affordability rank: 2nd least affordable
Housing price trend: -4.5%

3. Sacramento, Calif.
Median home price: $374,800
P/E: 10th highest
Affordability rank: 5th least affordable
Housing price trend: -4.1%

4. San Francisco
Median home price: $736,800
P/E: Highest
Affordability rank: 4th least affordable
Housing price trend: 2%

8. Los Angeles
Median home price: $584,800
P/E: 4th highest
Affordability rank: Least affordable
Housing price trend: 3.2%

10. San Jose, Calif.
Median home price: $775,000
P/E: 2nd highest
Affordability rank: 8th least affordable
Housing price trend: 2.7%

So when appreciation ends, the last three cities will be even more overpriced.

6 comments:

Craig said...

Interesting stats. Another interesting thing is the lot which is a "for sale by owner" situation on the 900 block of 25th street. The place was bought a little over a year ago for $1.52 million (it was a complete tear down). A few weeks ago, the bulldozers came in and they cleared everything off the lot and were pushing the dirt around...there is even a porta-potty on the lot. So it looks like they are about to start building...

Then the other day I drove past and there is a big banner on the fence that says "for sale by owner with permits and plans"...wow, kinda like the place on 22nd. THEN I heard that the guy who owns the place was about to build his persian palace but instead decided to buy the persian palace across the street (which went up for sale about a month ago and is now reported as being in escrow). So this rich persian guy just couldn't be bothered to build his own place...I am interested to see what he is asking for the lot and the "plans"...

I didn't but the "rich foreigners" excuse before but its getting hard to ignore it...but don't worry, prices will still likely fall by a significant amount...its just the ultra rich that are holding up the very high end stuff for now.

speedingpullet said...

Anyone have any info on what happened to 1518 11th? I had it on my ZipRealty search for over a year, then sudenly it went inactive last week.

No record of a sale that I can find.

I remember people specualting that, as a 'tear-down' the sale would go through after the development next door was finished - as the place was advertised at 'land value only' - although at almost $1.6 million, the land would need to be dusted with 24 carat gold....anyone have the skinny?

Joey said...

Does anyone know what's going on with the house on the corner of Ashland and 7th that is currently under renovations? It has been standing in the same state for at least a couple years with no workers, no nothing...almost abandonded. I live around the corner from it and am super curious as to what going on

Anonymous said...

Craig, at least we will be saved the sight of another ugly Persian mansion. Those things really get on my nerves, and it seems that most of the construction going on in Westwood, Cheviot HIlls, Brentwood, etc., is nothing but Persian palaces. Nothing against persians, just against their architectural sense.

Westside Bubble said...

The MLS has 1518 11th still active. I count 584 DOM now, the second oldest in Santa Monica.

speedingpullet said...

Westside Bubble.....wierd....I've often seen a discrepancy between the MLS and ZipRealty.

Ah! My bad - Zip's up to its usual trickery (or the people who use it, anyway) - it has a 'New' listing, posted on 5/12/7.
Probably in the hope that no one will remember the old listing....pity I keep a spreadsheet of all properties I'm interested in, for just this purpose.

A $150K haircut, though. Still insanely too expensive for 7000 sq ft of 'land value'