America's Most Overpriced Cities (take a guess where they are...)

[Porsche-O-Phile]

Predictable but still interesting. I was more looking for the cities in the U.S. with the highest affordability indices as potential relocation destinations, but this pretty much tells the story on the opposite end of the spectrum. Again, not the least bit surprising. The only part I find surprising is that people continue to stay here despite the bad (and deteriorating) quality of life.

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http://realestate.yahoo.com/promo/americas-most-overpriced-cities.html;_ylc=X3oDMTFwNDdkZmIxBF9TAzI3MTYxNDkEX 3MDOTc2MjA0NjUEc2VjA2ZwLXRvZGF5BHNsawNvdmVycHJpY2V kLWNpdGllcw

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America's Most Overpriced Cities

By Zack O'Malley Greenburg, Forbes.com

May 7th, 2009

Twenty metros where Americans have a hard time meeting expenses.

Vexed by gang wars and rising real estate prices, late rapper Tupac Shakur mused in 1996 that the overall cost of living in Los Angeles was so high that he would almost rather "live life in the pen[itentiary]."

Though East Coast-West Coast gang violence has since subsided, life in the City of Angels remains far from affordable. Thanks to bloated housing prices, lofty living costs and unemployment rates among the highest in the nation, the Los Angeles metro area tops our list of America's Most Overpriced Cities.

At least residents of Los Angeles and the third-ranked Miami metro get to enjoy balmy evenings and sunny days at the beach. Residents of the second-most overpriced metro area, Chicago, get sweltering summers and near-Siberian winters on top of a 9.4% metro area unemployment rate and a cost of living trailing only Los Angeles and New York.

The Big Apple ranks fourth on our list; it's weighed down by high costs and an 8.8% unemployment rate. Those factors overwhelmed the considerable earning power of New Yorkers with bachelor's degrees--$69,200 per year, on average, according to PayScale.com--a figure rivaled only by those in Washington, D.C., and Bay Area locales, including San Francisco. Still, it's not enough to bridge the price gap.

"For the average professional, New York's premium is not as high as you'd expect, given the cost of living," says Al Lee, director of Quantitative Analysis at PayScale. "The premium for a software developer in New York is actually less than it is in Seattle, and about the same as it is in Atlanta."

Even those in less-sprawling cities have it tough. Along with fifth-ranked Providence, R.I., Cleveland(No. 8) is one of the smallest metro areas among the 10 most overpriced cities. Though both boast low home prices and living expenses, they're dragged down by high unemployment and relatively stingy salaries of $56,000, on average.

To compile our list, we looked at earnings potential and living expenses in the 50 largest continental U.S. metropolitan statistical areas and metropolitan divisions--geographic entities defined by the U.S. Office of Management and Budget for use by federal agencies in collecting, tabulating and publishing federal statistics.

We ranked these metros using four measures: average salary for workers with a bachelor's degree or higher, with data from PayScale.com; annual unemployment statistics from the Bureau of Labor Statistics; cost of living, according to Moody's Economy.com; and the Housing Opportunity Index from the National Association of Homebuilders and Wells Fargo, which measures the number of homes sold in a given area that would be affordable to a family earning the local median income, based on standard mortgage underwriting criteria.

Los Angeles' troubles can be tied to many of the systemic problems currently plaguing the nation. With a whopping unemployment rate of 10.3%, the City of Angels and nearby Riverside, Calif., are among five of the country's 50 largest metro areas with double-digit unemployment.

Both have suffered as a result of the housing bust. Though neither ranks among America's emptiest cities, L.A. and Riverside have seen new residential building permit rates plummet 82% and 80%, respectively, over the last two years. The national unemployment rate for construction workers is now 21.1%, up from 12% a year ago, according to the Bureau of Labor Statistics.

"The unemployment [in Southern California] is definitely driven by the housing bust," says Lee. "Prices are collapsing, but if you're looking at buying a house, it's still expensive."

Indeed, though the median home price in the Los Angeles metro area has dipped from $525,000 to $319,000 over the last two years, Angelinos still face one of the least affordable housing markets in the country. According to the NAHB/Wells Fargo's Housing Opportunity Index, only New York, Long Island, N.Y., and San Francisco are more expensive.

Of course, living well in Los Angeles isn't impossible, as long as you have the funds. The aforementioned Shakur probably wouldn't have any trouble making ends meet in L.A., or anywhere else, for that matter. The rapper makes about $15 million per year in residuals--despite the fact he's been dead for 12 years.

[kaisen]

Median home prices dropped $200,000 in two years?

Matt (onewhippedpuppy), wouldn't your home be zero if that happened in Wichita?
It'd be pretty close in Minneapolis.

[Porsche-O-Phile]

Yes, and frankly housing is still insanely overpriced in most of this area too. It still has another 10-15% to drop based on the projections I've seen that correlate price with affordibility indices (<28% of gross household income), comparable rental prices and historical relationship to inflation.

Of course by the time we hit bottom, unemployment will be around 20-25% in SoCal so I guess it doesn't matter too much anyway...

[kaisen]

Have rent prices dropped accordingly?

[red-beard]

Not Houston....

[artplumber]

Originally Posted by Porsche-O-Phile

Yes, and frankly housing is still insanely overpriced in most of this area too. It still has another 10-15% to drop based on the projections I've seen that correlate price with affordibility indices (<28% of gross household income), comparable rental prices and historical relationship to inflation.

Of course by the time we hit bottom, unemployment will be around 20-25% in SoCal so I guess it doesn't matter too much anyway...

That's the number that the article gives for construction unemployment. So bottom may be very close.

C'mon Jeff you're just a SoCal hater

[jyl]

I question the logic of including unemployment in the formula. I'd think every city eventually becomes unaffordable for the unemployed. I don't disagree that cities like LA and NYC rank low on the affordability scale, though.

[onewhippedpuppy]

Originally Posted by kaisen

Median home prices dropped $200,000 in two years?

Matt (onewhippedpuppy), wouldn't your home be zero if that happened in Wichita?
It'd be pretty close in Minneapolis.

Pretty much. Fortunately we didn't have to deal with this kind of stupidity, so we still have slow but steady 6% appreciation.

[red-beard]

Does this look near bottom:

http://www.housingbubblebust.com/OFHEO/Major/SoCal.html

[red-beard]

Now this explains everything! Austin prices are going bubble, because all of the Liberals from California are moving here!

[Noah930]

Originally Posted by kaisen

Have rent prices dropped accordingly?

Rents in LA have dropped, though obviously not by as much as home purchase prices.

[campbellcj]

Several guys at work have been apartment-shopping lately in the westside areas (our office is in Santa Monica) and you're still talking $1200+ rent for a tiny one bedroom from what I gather.

[look 171]

Originally Posted by campbellcj

Several guys at work have been apartment-shopping lately in the westside areas (our office is in Santa Monica) and you're still talking $1200+ rent for a tiny one bedroom from what I gather.

West side, that's cheap unless you are right next to a gang infested area with lot and lots apartments.

I have been looking to buy rental property or fix and flip in up coming areas like Highland Park or Altadena for the last month. I am looking to purchased 2 bed 1 bath REOs in really beat up conditions. I made offers on 4 pieces of property all with foundation issues no kitchen, no bath and needed new electrical and plumbing. I got beat up by other offers. I over bid all four's asking price by 25-30,000 dollars with cash and ask for a quick escrow. I didn't get *****. Not even a counter. I am not even on the backup offer list. Homes like that are going like hot cakes from 250-350k and the banks know it.


Housing in So Cal isn't down all that much in the nicer areas. 200,000k from houses that used to be close to a mill still not all that affortable. I don't think its ever going to get back to what it was 10 years ago. It going to slowly creep back up because the banks are now loaning money again. My agent tells me that she hasn't stop in the past one and half months. Now I am backed up with a few mid size whole house remodel jobs around Silver Lake and Hollywood. People will spend if the banks are letting cash out.

Jeff

[grudk]

Originally Posted by look 171

It going to slowly creep back up because the banks are now loaning money again. My agent tells me that she hasn't stop in the past one and half months. Now I am backed up with a few mid size whole house remodel jobs around Silver Lake and Hollywood. People will spend if the banks are letting cash out.

Jeff

Low end may be closer to the bottom than the top, but mid and high end have a long way to fall. Increased lending isn't going to create increased prices, unless we go back to poor/no qualification standards, and absurd loan products. Not enough demand (with cash) for huge inventory

[jyl]

High end may "fall" by staying flat for several years, which would be a decline in real (inflation-adjusted) terms. I'm seeing this in higher-end neighborhoods in SF Bay Area. They went down 10-20%, now stagnant.

[grudk]

Still falling in LA. A little 'spring bounce' in activity, esp. cheaper homes, but this is typical in a down market. Happened every year in the early 90s, prices fell for 6 yrs.

I do think inflation will play a role in mitigating the 'price' declines, but not yet.

Psychology will change again for the worse once the markets take it in the shorts... fall for sure, if not sooner. My 2 cents

[look 171]

talk to me about spring bounce. I just feel like someone's always betting me up at that price range. any kind of a deal is gone within half a day with muti offers and over bidding. What is your definition of mid end, 400,000 bucks?
Jeff

[grudk]

I'd say that ppty over a million is falling slowly in price while inventory is sitting (even more true over 1.5). Under 500 is moving much better, with multiples/overbids not uncommon in some areas (where prices have been beaten down to attractive levels by REO)

I think the pain in the high-end in SoCal is yet to come. Time will tell, but I'm voting with my $, patiently renting.

Sold out a third of my retirement today, too. Wagering that the bear rally is nearing the top. I'll get back in if we approach the lows. If wrong, I'll take the tax hit and buy myself a toy. Life is too short. #$%@ it.

[Zeke]

The problem here is that if one were to "adjust" the housing to what Jeff considers affordable, then everyone would crowd in driving the prices back up. I'm talking about L.A. and other metropolitan areas that have all the amenities. If one wants to live in Barstow, you can find a house for under a 100K. You can also find little work and what is there pays half of L.A.'s wages.

It all balances out considering multiple factors.

That study paints a partial picture at best. Take a look at smaller CA communities from Santa Barbara and up the coast to San Fran. How about Marin County? No work and insane living expenses.

You want equality in a good wage earning region? Live in a trailer park. Demographics are what they are for good reason.

[Zeke]

Originally Posted by grudk

I think the pain in the high-end in SoCal is yet to come. Time will tell, but I'm voting with my $, patiently renting.

I talked to an old friend yesterday that is buying houses as fast as he can, all cash. In the better areas of Victorville where they tore down those uncompleted houses. He is paying the banks just above $40/ sq. ft. He is renting them for anywhere from $1k to 1500/mo. and making a lot of money in positive cash flow. Well, just cash flow because he has no mortgages on them.

He told me that there is no place for his money right now that can better his ROI. And he doesn't care which way the prices go as long as his balance sheet keeps growing. He'll buy a few million worth of these if he can. Otherwise, he's making 2% on his capital.

His way he is making over 10%. Money talks.