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Beholding the bubble


Does a real estate "bubble" exist in your area? Will it affect your investment in your home?

Top 30 markets to watch
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10 bubble blowers -- appreciation should continue to grow
Boise, Idaho. Besides having a happy-sounding name, Boise is consistently mentioned as a small, but strong real estate market. Forbes magazine ranked it first on its 2005 list of the best places for business and a career; John Burns Real Estate Consulting puts it almost at the bottom of its list of markets headed for a potential housing bubble.

John Schleimer, a real estate market consultant to major builders, says that both Boise and parts of the Idaho Falls panhandle will "hold up very well" housing appreciationwise.

"They're getting a migration of people fleeing the blue states," he says. Annual housing price increases have been a modest, but steady 4 percent to 6 percent over the past couple of years, with a significant -- but not out-of-proportion -- increase of 14 percent in the last quarter of 2005.

El Paso, Texas. Real estate market watchers have noted for some time now that Texas is a value buy. Local Market Monitor recently released a listing of overvalued and undervalued markets. Four of its 10 undervalued markets were in the Lone Star State, with El Paso the most undervalued market in the nation (the other undervalued Texas markets were McAllen, Dallas-Fort Worth and Houston).

"If I was an investor in real estate -- and I'm not -- I'd carefully consider Texas markets," Winzer says. "They had a big boom and bust about 10 years ago. They're at the end of that. They haven't been great markets for awhile, but quite likely, as economies improve there, people will move there, especially since prices are relatively modest."

Fortune ranked El Paso third on its list of markets set for strong appreciation in the next two years; another Texas market, San Antonio, was first.

Albuquerque, N.M. This is another city at the bottom of John Burns Real Estate's Housing Cycle Barometer, a measurement of cities that are susceptible to a housing bubble. It's also high on Fortune's list of markets that should experience growth in the next two years and had a healthy increase (18 percent, according to the NAR) in 2005. Locals say the area attracts Californians trying to escape high housing prices; once they discover the mild year-round weather, they don't want to leave.

Seattle, Wash./Portland, Ore. The overall news out of the Pacific Northwest isn't great. The area lost jobs in the tech bust and is still recouping. But in terms of housing price appreciation, the thing these cities have going for them is a restriction in supply. Tight controls on development have prevented the normal progress of builders going farther out from the city core to find cheap land in the suburbs. Hence, demand stays high for available units. (Forbes Magazine lists Seattle as the most overpriced place to live in the country; Portland was third on the list.)

"Portland and Seattle have really benefited from California's growth," says Richard Gollis, principal of San Francisco-based real estate consultants The Concord Group. "Portland is starting to see the next generation of housing product, which is large-scale, high-density projects in downtown. The same thing is happening in Seattle. People who moved there 20 years ago for the tech market are older now and have a different lifestyle."

Salt Lake City Nothing drives housing like a stable economy and job growth. Salt Lake City has both. Job growth is up about 4 percent, unemployment is low, the housing costs-to-income ratio is moderate and Utah builders give buyers a lot of house for the money. Local Market Monitor reported an 11 percent increase in appreciation in the market between 2004 and third quarter 2005, and Money magazine ranked it 20th on its list of 100 markets for growth over the next two years.

-- Posted: March 1, 2006
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