Experts rank nation's overpriced real estate markets
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Three views of cities with exorbitant home prices
By Thomas A. Fogarty
USA Today
Over the last year, Nassau and Suffolk counties outside New York City have seen faster growth in home prices than any real estate market in America — up a sizzling 30 percent.
But "fastest growing" is different from "most overpriced." That's a more subjective judgment, and the definition depends on which analyst you ask. Contenders for the most overpriced real estate markets: Tacoma, Wash.; Naples, Fla.; Boston; Denver; and San Diego.
As speculation grows regarding a possible housing price bubble in the hot U.S. real estate market, those cities are among the most worrisome for three leading real estate analysts who predict which real estate markets are at risk of stalling or crashing.
Cities with overpriced housing markets might have any of several factors at play: high land costs, a sluggish job market, rising mortgage payments or incomes that aren't keeping pace with home prices. Every analyst has a different recipe.
Tacoma tops the list of Michael Sklarz at Fidelity National Information Solutions. His latest analysis identifies it as the nation's most overpriced housing market: Prices are 23 percent higher than what Sklarz calls the intrinsic value for homes there, vs. 7.2 percent overpricing for homes nationwide.
Sklarz says a correction is inevitable in markets such as Tacoma because prices have gotten out of line with what local economies can sustain. The correction may be a prolonged pause in price increases or a decline, Sklarz says.
"The fact that a housing market is overpriced doesn't necessarily mean it's going to crash tomorrow, or even next month," he concedes.
Though Tacoma home prices remain in the midrange nationally, with a $170,000 sales median, Sklarz says it made the top of the Fidelity National list on the basis of rapid home price appreciation in recent years and employment numbers that have peaked.
Glenn Crellin, a real estate expert at Washington State University, says he's "a little bit surprised" by the ranking.
He says Tacoma has benefited by proximity to many Seattle-area jobs, although not the tech jobs spawned by Redmond-based Microsoft.
Nassau-Suffolk, which the National Association of Realtors says has the fastest price growth, ranks No. 7 on Sklarz's list.
Rankings are aimed primarily at business clients whose livelihoods depend on the housing market — builders, lenders, home-supply retailers and the like. But home buyers and sellers have an obvious stake, too.
Sklarz says the "overpriced" designation should be a signal to both buyers and sellers in those markets that price run-ups are at least about to flatten. Steep price drops are less likely, he says.
"Real estate prices move in long-term cycles," he says.
Economy.com of West Chester, Pa., cites Naples, Fla., as the most overpriced market. Its $284,000 median sales price in the April-June quarter has nearly doubled since 1995.
Naples, says Economy.com chief economist Mark Zandi, is one of 24 U.S. metro areas the firm rates as "highly overpriced" and due for correction.
Most are coastal, and Zandi says that's no accident. Shorelines present a barrier to large-scale home building, limiting supply.
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Three views of cities with exorbitant home prices
Real estate analysts compare home prices with economic conditions to determine where housing is most overpriced. Here are the most overheated markets as determined by three influential analysts.
