The 13 Riskiest Housing Markets
If your hometown is on this list, the value of your house may be in jeopardy.
By Dave Lindorff
From Kiplinger's Personal Finance magazine, August 2005
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Beantown Bubble
In PMI's view, Boston is the riskiest housing market in the nation. PMI assigns a 53% probability that Boston housing prices will decline over the next two years. The city is at risk despite falling home prices between 1992 and 2001 and a relatively modest annualized appreciation of 7% since then. The problem, says Lawrence Yun, regional economist for the National Association of Realtors (NAR), is that the Boston area has lost 200,000 jobs since 2000 and that housing prices remain high, with a median home selling for $398,000. But David Lindahl, a veteran real estate buyer who runs a local investors' club, looks at the bright side of a possible price decline in Boston. That would mean, he says, "buying opportunities in the foreclosure market."
Big Apple Bailout
Like Boston, New York City suffered through a housing slump in the '90s. But while job losses were the big problem then, now it's out-migration. "People from New York, especially baby-boomers, are moving out," says Yun. If the trend accelerates, it could cause a problem, particularly for the high end of the real estate market. Meanwhile, prices remain extremely high. The median price for existing homes in the metropolitan New York City area (which includes parts of Connecticut and New Jersey as well as Long Island and Westchester County) stood at $435,000 at the end of the first quarter of 2005, up 18% over the first quarter of 2004. PMI puts the risk of a price decline in New York City at 31% and says it's even money that prices on Long Island, where affordability is becoming a concern, will sink within two years.
Lauderdale lunacy
Prices of existing homes in Fort Lauderdale rose 32% over the past year, putting the median price at $321,000. PMI puts the risk of prices falling at a relatively tame 23%, but signs of aggressive buying by investors warrant Fort Lauderdale's inclusion on our list of the riskiest areas. "Fort Lauderdale is very vulnerable," says Kenneth Simonson, chief economist for the Associated General Contractors of America, a builders trade association. "There are lots of reports of speculative buying." NAR economist Yun suggests that there's been so much appreciation that retirees, the traditional buyers of Fort Lauderdale real estate, may be priced out of the market. Europeans remain a source of demand, but that could quickly vanish if the euro continues to weaken, as it has recently.
Capital craziness
It's not the amazing performance of the Washington Nationals (formerly the Montreal Expos) that is driving up home prices in and around the nation's capital. It's increases in federal spending, which support a strong job market. The median home price in Washington, D.C., and the nearby Maryland and Virginia suburbs jumped 23% over the past year, to $369,000. Even a modest decline in government outlays could tip the housing market on its side. PMI rates Washington's chances of a slump in housing prices at 19%.
Motor City Mayhem
What's Detroit, of all places, doing on a list of the riskiest housing markets? After all, home values rose less than 1% over the past year, to a median value of $151,000. Yet PMI estimates the odds of a price downturn at 38%. It's all about jobs -- at the struggling automakers in particular. General Motors hammered home the point in early June with the announcement that it would eliminate 25,000 jobs by 2007. "With job growth in Detroit flat to negative, and with GM and Ford struggling, prospects for housing look weak," says Simonson. Still, even in a tough real estate town such as Detroit, some investors see opportunity. Sonny Gandee, 25, a self-proclaimed "day trader in real estate," says he's confident that the Hispanic population will continue to grow, so he is focusing on Detroit's Mexicantown neighborhood. Gandee netted $250,000 over three years by investing in properties there, renting them out with minimal rehab, then selling.
LA-La Land
Real estate investing is serious stuff in Los Angeles. Two years ago, Marsha Haywood left her $2,000-a-month job running a drug- and alcohol-rehabilitation home for women in order to get into property. Since then, she's acquired four houses before construction. Haywood sells on completion and expects a profit of roughly $35,000 to $100,000 per unit. "You need to play it like a game," says Haywood, 57. Speculation of this sort, plus explosive price increases -- 32% last year and 16% in 2003 -- have some wondering whether prices in L.A. represent one of those bubbles that Fed chairman Greenspan has in mind. Another risk: Local authorities could loosen permit restrictions, opening the door to a substantial amount of new supply. PMI rates L.A.'s risk of a property slump at 40%.