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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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San Francisco. With a median home price of nearly $720,000 at the end of 2005, according to the NAR, San Francisco remains one of the country's most expensive cities to live in, outpacing even Honolulu and New York City. Housing prices are unlikely to decline because of short supply -- surrounded by hills and its famed bay -- there's just nowhere else to build anything less expensive in the city. But realistically, there aren't that many people who can afford to buy at those prices, which should keep prices from going much higher.

Detroit. Detroit hasn't been on anyone's list of hot markets for a long time. In the most recent report from the NAR, The Motor City was one of only six metro markets in the country to show a decline in housing appreciation in the past year, with prices down about a half percent. It's a trend that Local Market Monitor has been tracking since 2001; annual price increases have dropped from 7 percent that year to just 2 percent in 2005. Fortune doesn't predict any better performance in the market through 2007. John Burns Real Estate Consulting actually gives the Detroit market its worst possible grade, an F, based largely on a large loss of jobs and the highest unemployment rate of any metro market in the state.

Minneapolis. Minneapolis made our list for a couple of reasons. In a year when the majority of metro markets showed double-digit increases in appreciation, it barely surpassed the rate of inflation, according to the NAR. And for the next two years, the prediction is that appreciation won't even see the left side of a decimal point.

Baltimore. Like its pricier neighbor to the south, Washington, D.C., Baltimore has seen double-digit increases in appreciation in recent years. But several reports indicate the market is overpriced compared to its history. Local Market Monitor indicates that prices are overvalued by 17 percent; Fortune's number crunchers forecast a slight increase in values for this year, followed by a small drop-off in 2007, perhaps signaling that prices have leveled off.

Denver. Gollis has been big on Denver for some time, seeing it as a market that went through a rough time -- it lost thousands of telecom jobs a few years back -- but it is returning to a level state. The market has caught the attention of national builders in recent years, there is major construction under way and the Stapleton Airport redevelopment is one of the largest projects of its kind in the nation. Yet the NAR reports that in a year when the vast majority of markets showed double-digit increases in appreciation, Denver's rate was 4.4 percent, and Local Market Monitor reports that it hasn't been above 5 percent since 2001. The good folks at Fortune predict that for the next couple of years, Denver's rate of appreciation won't see half that number.

-- Posted: March 1, 2006
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