Interesting report over at Forbes (hat tip: Dean Alexander) on riskiest housing markets. Topping the list, not surprisingly, is Miami.
“Many of the cities on our list –like San Francisco and San Diego–are traditional high fliers where speculators can still make a lot of money if they pick the right neighborhood or hit the price trough. Of course, they might also take a serious bath. Others, like Chicago
or Phoenix, are generally stable markets that are currently under significant
strains. Finally, some, like Cincinnati or Kansas City, are precariously teetering and are not well equipped to handle further downturn. … The metros with the highest shares of ARMs, according to the National Association of Realtors, are in San Francisco, San Diego and Los Angeles, respectively. These three cities are also the most overpriced, according to our
price-to-earnings measure. And these areas are three of the four least affordable to the local population, according to the National Association of Home Builders and Wells Fargo’s affordability index. If rates go up or lending tightens, fewer will be able to buy in, bringing the markets to a screeching halt. …Two larger cities that performed very well by this measure were
Los Angeles and New York, which ranked fourth and eighth for lowest vacancy rate. While both cities had high ARM shares and high P/Es, their low vacancy rates bode well for those markets.
Interesting stuff: and I agree with much of it (still waiting for that steal on a place in Miami Beach).But what what if much of the demand in places like San Francisco, San Diego and LA is not coming from local sources – what if it is increasingly global? Could that be what is showing up in the low vacancy rates in NY and LA, and continuously rising prices in Manhattan? Is the super-star city phenomenon now shifting outward to the global level, as globalization brings us a small set of global super-stars where demand has gone truly global?
July 31st, 2007 at 12:22 pm
I wonder how the weak dollar may prop up some of these otherwise overpriced housing markets. Those foreigners holding, for example, euros or even Canadian dollars can find some relative bargains even in Miami, LA, NY, etc. Will that spill over in to less-globalized coastal areas, like South Carolina or Oregon? The South Carolina coast, for example, has already been largely overtaken by out-of-staters taking advantage of relatively cheap coastal properties (how many Michigan and Ohio plates do you see in Myrtle Beach & Hilton Head?). Native middle-class South Carolinians are more likely to go to more out-of-the-way, undiscovered coastal towns (I won’t mention any for fear of opening the real estate & development floodgates).
July 31st, 2007 at 3:05 pm
Lowest vacancy rates (for rentals) seem to be in geographically constrained places (NY, LA) that have strong, dynamic economies. So limited supply and barriers to entry are factors affecting vacancy rates and rental rates.
In the superstar cities, I suspect that there is an international ownership distinction between high-end condominiums and single family homes (or low rise duplexes and townhomes). At least in Vancouver, the global jet setters seem to prefer the condo route, likely because they are low maintenance. You can close and lock the door and leave for three months and all is perfectly safe.
A vacant single family home or duplex requires a caretaker. Certainly, some jet setters (or pro-sports stars) own single-family homes they only occupy a few months of the year, but I think this is the exception rather than the rule.
So, high condo prices may be driven up by global $, but high single family housing prices are based more on local factors (although there is certainly some interplay between the two).