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January 2006 |
A Publication of ELLIOTT®
& Company Appraisers |
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HOUSING
PRICES PREDICTED TO LEVEL OFF IN 2006,
BUT NOT CRASH |
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 Nariman Behravesh, chief economist of Global Insight, has issued his
"Top 10 Economic Predictions for 2006." One of these predictions is
about the price of housing.
"House prices will level off without crashing," Behravesh wrote for
Global Insight’s Web site. "So far, the British and Australian
housing markets have cooled down without crashing. The same fate
probably awaits the U.S. economy in 2006."
While the average rate of appreciation in home values has been at
about 9% the past couple of years, Behravesh predicted collective
home values would only rise by 3.5% this year and 1.9% in 2007.
"Thus, the housing bubbles are likely to deflate without bursting," he
concluded.
Another prediction was about Federal Reserve rates.
"The Fed will keep tightening through the spring," Behravesh
forecasted. "Global Insight predicts that the Fed will raise rates
at least three more times between December and March, before taking
a breather. This will leave the funds rate at 4.75%."
Outgoing Federal Reserve Chairman Alan Greenspan did indeed raise the
rate a quarter of a point in December 2005, meaning if Behravesh’s
prediction will prove itself to be accurate, there will be two more
increases by the end of March.
"Solid growth will last at least for another year," Behravesh
stated. "Global Insight expects both the U.S. and global economies
to grow at about 3.5% this year, compared with 3.7% and 3.4%,
respectively, in 2005. In the case of the United States, an expected
slowdown in consumer spending and housing will be offset by strength
in capital spending and exports, helped by a fiscal boost from
hurricane-related construction."
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$300K BUYS DIFFERENT
TYPES OF HOUSES
IN DIFFERENT PARTS OF U.S. |
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  You can buy a really nice house in this
country for $300,000. Just make sure you are careful about where in the
United States you spend the $300,000 for a house.
For example, this amount of money can net someone a beautiful, spacious
home in, say, Wichita, Kansas. But try to put up 300 grand for a place
to live in Manhattan and your pad would not be so grand. According to a
recent study conducted by Kiplinger’s Personal Finance Magazine, one can
by a 3,550-square-foot, four bedroom, two-bath house on a waterfront for
$289,900 in Wichita. That same amount of money wouldn’t be enough for a
520-square-foot studio apartment with roof-deck access in San Francisco,
where the price tag for such a unit was $299,000, according to the
study. This study determined that $260,000 would be needed for a
425-square-foot, ground floor studio on the Upper East Side of
Manhattan.
In another large city, not that far from the Big Apple, housing is much
more affordable. The Kiplinger study indicated that 2,372-square-foot,
four-bedroom, one-bath split-level can be had in Philadelphia for
$299,000. On the other hand, housing is quite expensive in Boston, where
$274,000 is needed to purchase a 770-square-foot, two-bedroom, one-bath
condo.
Other areas that provide quite a bang for the buck in the housing market
include Nashville, where a 3,620-square-foot, four-bedroom, 2˝ bath
colonial house with a finished basement was on the market for $289,000;
Dallas, where a 3,465-square-foot, four-bedroom, 3˝-bath house with a
media and game room was selling for $299,921 and Charlotte, N.C., where
$299,000 would land someone a 2,912-square-foot, five-bedroom,
three-bath, house with a two-story foyer.
In Phoenix, $295,000 buys a brand new 1,800-square-foot four-bedroom,
three-bath house, while $300,000 is needed in Seattle to purchase a
958-square-foot, one-bedroom, one-bath, waterfront condo.
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STUDY FINDS HOUSING
‘EXTREMELY OVERVALUED’
IN 38% OF COUNTRY |
 While we at ELLIOTT® & Company
Appraisers tend to believe the prediction in the first article
about a soft landing, rather than a crash, for housing prices,
we do realize that some parts of the country may see a sharper
price correction than most.
A study, conducted jointly by Global Insight and National City
Corp., determined that, in the third quarter of 2005, housing
prices in 65 out of 299 U.S. markets were "extremely overvalued
and face a high risk of future price correction." These 65
markets accounted for about 38% of the population in the United
States.
Taken into account on this study were "price-to-income ratios,
household population density, mortgage interest rates, relative
income levels and characteristics unique to the history of each
metro area."
Each of the 299 markets were given a "model-estimated home
price" by the study, which was compared to each market’s "actual
home price." Only the markets where the actual home price
exceeded the model-estimated home price by 30% or more were
rated as "extremely overvalued."
Topping the list of extremely overvalued markets in the report,
issued in December, was Naples, FL, where the actual home price
exceeded the study’s model-estimated home price by a whopping
84%. Four other markets, Merced (76.7%), Salinas (74.8%) and
Stockton (72%), CA and Port St. Lucie, FL (72.2%) topped 70% in
the study.
Seven additional markets, Madera (69.9%), Santa Barbara (69.7%),
Modesto (66.9%), Napa (65.5%), Riverside (64.8) and Sacramento
(61.5%) and Medford, OR (64.1%) were above 60%. Between 50% and
60% were Atlantic City, NJ (58.6%), Chico (58.5%), Fresno (58%),
Redding (56.3%), Santa Rosa (56.1%), Oxnard (54.8%), Los Angeles
(54.2%), Vallejo (52.6%), San Luis Obispo (52.5%) and
Bakersfield (51.1%), CA, West Palm Beach (56.9%), Sarasota
(55.6%), Miami (55.3%), Vero Beach (54.3%), Fort Lauderdale
(52.8%) and Cape Coral (51.9%), FL and Bend, OR (56%).
The markets listed in the study at between 40% and 50%
overvalued included Palm Bay (48.7%), Panama City (45.8%),
Deltona (44.2%) and Fort Walton Beach (43.2%), FL, Barnstable
Town, MA (48%), Oakland (47.4%), San Diego (45.8%), Visalia
(44.9%), San Jose (44.3%), Santa Cruz (43.7%) and Santa Ana
(43.6%), CA, Ocean City, NJ (46.7%), Prescott, AZ (46.4%),
Bellingham, WA (43.2%) and Nassau-Suffolk, NY (42.7%).
The remaining markets the study considers overvalued are
Poughkeepsie (39.2%) and Kingston (38.1%), NY, Reno (38.4%) and
Las Vegas (38.2%), NV, Washington, DC (37.2%), Bethesda, MD
(35.7%), Providence, RI (34.9%), San Francisco, CA (34.9%), St.
George, UT (34.9%), Ocala (34.8%), Tampa (33.7%), Pensacola
(33.2%), Orlando (32.7%) and Jacksonville (30.5%), FL, Phoenix,
AZ (34.8%), Portland (34.7%) and Eugene (33.8%), OR, Grand
Junction, CO (31.4%), Honolulu, HI (31.3%), Edison, NJ (31.3%)
and Duluth, MN (30.8%).
The study considered nearby parts of Virginia, Maryland and West
Virginia in the Washington market. It also included parts of
Massachusetts in the Providence market, parts of Washington in
the Portland market and parts of Wisconsin to be in the Duluth
market. |
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QUOTES OF WIT &
WISDOM |
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"Plans are merely good
intentions unless they immediately degenerate into hard
work." --Peter Drucker
"One’s first step in wisdom is to question everything, and
one’s last is to come to terms with everything."
--Georg
Christoff Lichtenberg
"Bureaucrats write memoranda both because they appear to be
busy when they are writing and because the memos, once
written, immediately become proof that they were busy."
--Charles Peters
"The only winner of the War of 1812 was Tchaikovsky."
--Solomon Short
"Truly great madness cannot be achieved without significant
intelligence." --Henrik Tikkanen
"A countryman between two lawyers is like a fish between two
cats." --Benjamin Franklin
"People will accept your ideas much more readily if you tell
them Benjamin Franklin said it first."
--David Comins
"As scarce as truth is, the supply has always been in excess
of the demand." --Josh Billings
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