House of cards -- Housing Market Outlook and Commentary

The Economist.com ^ | 5/29/03 | Pam Woodall

[ambrose]

I have been noticing apartment for rent signs popping up as well. When I moved to this area (Miracle Mile), apartments would rent the first day they hit the market. Now, it is houses which sell above the asking price only days after hitting the market.

[frankym]

I think what all of these articles fail to recognize is the regional nature of the housing bubble. If you look at averages of $163k for a home in the US, or $40k in average annual savings, the word bubble doesn't come to mind. You can still find work in a city like Atlanta, earn roughly 75-80% of what people in the Metro New York area, and live within 30 minutes of your job in Atlanta or on the fringe. If you work in New York City and are interested in living wihin 1 hour of your work place, look to pay at least 4 times the price of the home near Atlanta. Consider 3 suburban areas surrounding manhattan: Nassau County Long Island, Essex Couty NJ and Fairfield CT. I am looking for a home in or around Stamford. To be within 30-45 minutes of my work in Stamford, I can consider areas such as Greenwich CT, Stamford CT, Darien CT, Norwalk CT, or in Westchester NY in towns such as White Plains, Rye, etc. $500k will buy you a nice 3 bedroom condo with @1500 square feet, a 1 bedroom condo in Greenwich with 650 square feet, a 3 bedroom 1.5 bath 1950s ranch on 1/8 acre in white plains. So in many instances, homes in the areas I mentioned have quadrupled since 1995. Consider as greater evidence that these select markets are well into bubble territory, the cost of renting 1000 square feet of apartment space with lots of amenities is roughly 1/2 the carrying cost of a $300k condo of comparable space. In 2001 when apartment vacancies began to rise, the absence of rental demand was attributable to people purchasing homes. Now the rental market is very weak, and it's because people are leaving these hot areas. They cannot find work with a livable wage for the areas mentioned. This is making a case for deflating prices in real estate, as people leave the northeast in search of jobs, they weaken the demand for housing in these overpriced areas. People that have bought a 1950s ranch in Darien CT with 2 bedrooms and 1 full bath of 1150 square feet on 0.11 acreas for 550k with the expectation that it will rise to 750k in 3 years. Ask yourself who will have the budget for a $750k shack that isn't big enough for 2 adults much less a family.