A commenter pointed out this article on CNN Money a few days ago regarding overpriced coastal housing markets:
Some of the most overheated U.S. housing markets did become a little less overvalued during the fourth quarter of 2005 — but homes there didn’t actually fall in price.Other factors, such as rising income, combined to increase what Local Market Monitor president Ingo Winzer calls the equilibrium value — what the typical house should sell for . Winzer compares the equilibrium value to actual prices to compute the percentage overvalued.
The more overvalued a market is, the more likely it will regress toward its equilibrium, according to Winzer. He also says that the greater the overvalue, the larger the correction will be and the longer the time period before the market starts growing again.
An overvalue of 40 percent or more indicates very high risk of correction, he says.
So, according to Ingo’s secret formula, Seattle-Tacoma is only 8% overvalued, ranking as a “FairValue” and not likely to “regress.” Not surprisingly, I find myself unconvinced. Though I do wonder what the numbers would look like if they focused more on just King County. The figure given in their table for “Seattle-Tacoma’s” actual home price is a mere $311,000. That’s probably correct for such a broad area, but as we all know thanks to the huge headlines last week, King County’s median home price of $405,000 is 30% higher than that, and 41% higher than the “equilibrium” value.
In other news, I’d appreciate it if the tone of the comments was taken down a notch. There’s no reason to get snippy with one another. Also, I happen to quite like Seattle. This is not the “We Hate Seattle” blog. If you just want to complain about the town, you can start your own blog for that. Thanks.
(Les Christie, CNN Money, 04.07.2006 )