Interesting current ranking of home price "over-valuations" (at least for me, since I live in Santa Barbara -- well Goleta actually -- same problem). You have to click on the link to get the full ranking chart. Median home price in my area is currently 1.2mil. I paid $130K for my condo in 1996.
Still not sure "bubble" is the correct term for what's happened to housing in the last few years. The market fluctuates, sometimes more than other times. In the 80's many Californians saw their houses more than double, then take a nice big drop, and now go a good deal higher up again.
If you buy wisely, you can ride out these market fluctuations. Hint: Multiple interest only loans, and taking out home equity loans every time the bank tells you your home value has increased is not investing wisely. This is a scary common practice in these parts.
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http://www.usatoday.com/money/economy/housing/2005-08-16-home-prices-usat_x.htmHome prices 'extremely overvalued' in 53 cities
By Sue Kirchhoff, USA TODAY
WASHINGTON Single-family home prices are "extremely overvalued" in 53 cities that make up nearly a third of the overall U.S. housing market, putting them at high risk of price declines, according to a study released today.
Workers put finishing touches on a new home in Sacramento.
By Rich Pedroncelli, AP
The report, by Richard DeKaser, chief economist of National City Corp., examined 299 metro areas accounting for 80% of the U.S. housing market. (Chart: High-priced housing faces risks; 299 metro areas ranked)
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DeKaser terms a market extremely overvalued if prices are 30% above where he estimates they should be based on historic price data, area income, mortgage rates and population density a proxy for land scarcity.
Based on those criteria, Santa Barbara, Calif., is the nation's most out-of-whack market, with houses 69% overpriced. Rounding out the top five: Salinas, Calif.; Naples, Fla.; and Riverside and Merced, Calif.
College Station, Texas, is the most undervalued, priced 19% below where the data suggest it should be. Other inexpensive communities include El Paso, Odessa and Killeen, Texas, and Montgomery, Ala.
The highest-risk markets are in California; Southern Florida; parts of the Boston area; the Long Island, N.Y., counties of Nassau and Suffolk; and Ocean City, N.J.
The big culprit: in 85% of the cities surveyed, home-price gains outpaced income gains during the past year. In Bakersfield, Calif., prices rose 33% while incomes increased 3%. In 29% of areas, prices outpaced income growth by at least 10 percentage points.
Just 2% of markets were in bubbly territory at the start of 2004, vs. 31% in the first quarter of 2005.
Some of the most expensive areas or those with the fastest growth aren't necessarily the most overpriced, according to DeKaser's model. Pricey Honolulu, Hawaii, for example, isn't in the top 53.
DeKaser says his study doesn't mean big corrections are imminent, though he sees evidence the housing market could be at or near a crest.
"For the U.S. as a whole, I expect we're going to have an orderly correction. But that doesn't mean it's going to be equally orderly in all places," DeKaser says.
He says it's rare for property to depreciate, even in overvalued markets, without an economic shock such as rising unemployment. Price corrections might not occur at the same time, and declines in one area could be partly offset by gains elsewhere.
DeKaser's 30% threshold for overvalued markets is based on prices in 63 areas since 1985 that later had housing price declines.