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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: kodiak_bull who wrote (16408)	9/8/2002 2:39:22 PM
From: jim_p	Respond to of 23153

Living in a Bubble Housing Experts Warn Some Real Estate Markets Are Overpriced By Bill Redeker S A N D I E G O, Calif., Sept. 5 — David and Karen Moseley have started a family and are eager to buy a new, bigger home. Print This Page Email This Page See Most Sent • Remembering Sept. 11: Full Coverage • Foreign Journalists: U.S. Seen as 'a Greedy Bully' • The Tale of a Boy and His Goose MORE ON THIS STORY RELATED STORIES • Could Stalwart Housing Market Crumble? They found one they can afford thanks to the lowest interest rates in 30 years. The five-bedroom, 4 1/2 bath house lists for $722,000. "It's a great investment with what's going on in the stock market," says Mr. Moseley. Money diverted from the market and the record-low mortgage rates have created strong demand in San Diego. And a limited inventory of homes has sent prices soaring. San Diego real estate prices have climbed about 20 percent this year. It's the same story in other markets. Prices in Chicago have climbed 13 percent. Certain pockets in northern New Jersey saw appreciation of 25 percent. But now some experts are warning that a bubble, like the dot-com bubble that burst two years ago, could threaten real estate. Checking the Bubble Barometer Ian Morris, an economist at HSBC Securities in New York, is concerned. "We seem to forget that there is still a cycle around a trend in housing and right now everyone thinks housing can't go down but historically it's been the most cyclically sensitive part of the economy." Morris says real estate bubbles lose some of their air about three years after stock markets peak. That means a "correction" in home prices could occur in another year. John Burns of Real Estate Consulting in Irvine, Calif., believes bubbles already exist in Boston, San Diego and Fort Lauderdale. "Those are three markets where price appreciation has been so significant that even the [new, lower] mortgage payments in relation to income is higher than usual." Burns has created a "housing cycle barometer" that measures affordability based on price, mortgage payments, and income. He says homes in 17 major metropolitan markets are overpriced and have appreciated to levels that cannot be sustained. His research is based on 21 years of real estate data. INTERACTIVE MAP: Is Your Market Overpriced? And he warns, "If you're trying to make a speculative investment where you're going to cash out in a year or two, you're playing a risky game [in those markets]." Good Buys Still Remain Both experts agree that the bubbles will begin bursting when the economy recovers and interest rates head back up. "When home prices rise to a certain level, people want to get out, people want to cash out, employers look to move operations elsewhere, and that's when you see prices decline," says Burns. On the other end of his barometer, Dallas, St. Louis, Indianapolis and Philadelphia are still "good buys" because either inventory levels are high or demand is moderate or both. Two dozen major metropolitan areas in all qualify. Still, there is no assurance that buyers in those cities will see double-digit appreciation. Some of the cities on the bottom of Burns' chart have had trouble attracting business. Without demand, prices usually remain flat. "It's unrealistic to expect housing to be able to continue to keep going up and up," says Morris. "At some point, it has to tip over." The Moseleys say they're not worried because they are selling their current home at the top of the market. "We bought a house three years ago and we made so much equity in that house, that it's a good time to move up," says David Moseley. Plus, he says they will probably hang onto their new home a lot longer which will enable them to survive a downdraft in real estate prices if and when the bubble bursts in San Diego.