bubble busters -- values expected to decline
Las Vegas What goes up must
come down. Fortune lists Las Vegas dead last in its
list of 100 metro markets for housing appreciation in
the next two years, predicting a two-year combined decrease
in housing values of nearly 13 percent. Local Market
Monitor reported a 33 percent increase in appreciation
between 2003 and 2004, and then a 14 percent increase
by the third quarter of 2005, evidence that prices have
begun to cool.
"Las Vegas is a very interesting
market," Winzer says. "A lot of people moved
in, but construction has kept up with the pace. For
a long time until recently, I didn't consider it an
overpriced market. I don't think the price increases
will last. There's really not an inability to produce
new homes out there if there is a demand for it."
We're not quite sure what Sacramento ever did to anyone,
but it showed up on just about everyone's list of has-been
markets. Winzer's Local Home Value Ratings rates the
market as 59 percent overvalued and Burns Housing Cycle
Barometer also lists it as overpriced.
"Sacramento, we think, has topped
out," says Gollis of The Concord Group. "There
is just so much (housing construction) in the pipeline.
It's a steady-as-she goes market and has always had
consistent growth, but we think the land market has
gotten ahead of itself."
bigger they are, the harder they fall, and Phoenix is
the largest housing market in the country in terms of
new construction. It's been running at 65,000 new units
per year, with housing appreciation increasing at rates
of nearly 30 percent per year.
"You can't sustain 30 percent increases
a year for very long," Winzer says. "Of all
the 100 markets we review, we think if you're an investor
in Phoenix, you should sell, because vacancy rates are
already pretty high." Gollis says his firm has
been studying the market carefully and doesn't like
what it sees. "It's had an incredibly unusual amount
of growth," he says. "The land market has
accelerated dramatically and the lot price as percentage
of the home price has gone up significantly. We have
some concerns about going long in Phoenix."
one is in Winzer's backyard, his firm is based in Wellesley,
Mass., so he sees what is happening there every day.
"Until about a year ago, homes would
go on sale and be gone in a week," he says. "Now
they're sitting on the market for a year." He doesn't
see the prices dropping rapidly here -- or in any market,
for that matter -- because while real estate prices
escalate rapidly, they drop slowly.
"In markets that are well-overpriced,
prices don't really fall because people just won't sell,"
he says. "The adjustment mechanism is skewed by
people's emotions getting involved. People will grit
their teeth and hang on as long as they can to get the
price they want."
They might not be able to hang on for
long. Burns ranks Boston fourth on his list of markets
likely looking at a bubble; Winzer's analysis indicates
the market is 33 percent overvalued.