Bubble watch: 10 cities that will top out

[T-Man007]

TweetThese are areas that are close to toping out, which basically means, they are about to hit a point of little to no appreciaiton for a while. These are cities that you do not want to invest in.

These bubble sitters have had a good run, but will likely see little more price increases. Job losses, affordability and available land are challenges for many of these towns.

By Pat Curry, Bankrate.com

10 cities that will keep rising
10 cities where prices will deflate
On Bankrate.com: Buying a home sight unseen
On Bankrate.com: First-time home buyers' guide to taxes
Washington, D.C.: The D.C. market ranks 10th on John Burns' list of markets facing a potential housing bubble, and home sellers in the metro market report that it's taking longer to sell than it did a year ago. Plus, builders are offering significant incentives to try to move inventory quickly. Fortune's survey suggests the market will decline slightly in 2007. Still, D.C. has a healthy economy and job market; Forbes ranks it fourth on its list of great places for business and a career. And where there is business, there are home buyers.

Fort Myers/Cape Coral, Fla.: Is it overvalued? Yes. Local Market Monitor reports annual housing appreciation of between 9% and 11% between 2001 and 2004 and then a 33% leap in 2005. Has the market topped out in housing appreciation? Not yet, but it can't absorb much more, say the real estate gurus. The market is still affordable and more reasonably priced than Sarasota (43% overvalued) to the north or Naples (a whopping 72% overvalued) to the south, but the amount of building in the market is staggering -- most of the country's major builders have strong presences in Lee County -- and land prices, once quite affordable, have increased as much as tenfold in recent years.

Chicago: The Midwest hasn't had the kind of dramatic price increases as cities on the two coasts and those in the Sun Belt. As such, Chicago isn't as susceptible to a pricing bubble as some of the other major urban areas of the country, the real estate pros say. However, the ratio of housing costs to income in the market far exceeds that of other markets in the state and job growth has been sluggish. "The big challenge in Chicago is work-force housing," Gollis says. "We're always looking at likely income growth and affordability growth or lack thereof."

Honolulu: Because of its remote location, Honolulu is tough to compare to anywhere else. After a drop-off in population in the 1990s, people have started returning to the island, Winzer says, creating a housing shortage that has contributed to rapid increases in housing prices. In 2003, the median price of an existing single-family home was $380,000, according to NAR. By the end of 2005, it was expected to be at $620,000. Currently, the economy on the island is good, Winzer says, driven by economic conditions in Japan. Fortune predicts a small, but realistic increase in values this year followed by a slight drop-off in 2007.

Tucson, Ariz.: Tucson's housing market is dwarfed by Phoenix -- new construction in Tucson is roughly one-fifth of the number of units built annually in Phoenix -- but it has joined its much-larger neighbor in attracting the attention of real estate investors. The NAR reported a 32% increase in appreciation over 12 months. The current pricing is about one-fourth higher than it should be, Local Market Monitor says. The pros look for the market to stabilize in 2006, with an increase that roughly tracks the inflation rate, increase this year, followed by a decline in pricing in 2007.

San Francisco: With a median home price of nearly $720,000 at the end of 2005, according to the NAR, San Francisco remains one of the country's most-expensive cities to live in, outpacing even Honolulu and New York City. Housing prices are unlikely to decline because of short supply -- surrounded by hills and its famed bay -- there's just nowhere else to build anything less expensive in the city. But realistically, there aren't that many people who can afford to buy at those prices, which should keep prices from going much higher.

Detroit: Detroit hasn't been on anyone's list of hot markets for a long time. In the most recent report from the NAR, The Motor City was one of only six metro markets in the country to show a decline in housing appreciation in the past year, with prices down about a half percent. It's a trend that Local Market Monitor has been tracking since 2001; annual price increases have dropped from 7% that year to just 2% in 2005. Fortune doesn't predict any better performance in the market through 2007. John Burns Real Estate Consulting actually gives the Detroit market its worst possible grade, an F, based largely on a large loss of jobs and the highest unemployment rate of any metro market in the state.

Minneapolis: Minneapolis made our list for a couple of reasons. In a year when the majority of metro markets showed double-digit increases in appreciation, it barely surpassed the rate of inflation, according to the NAR. And for the next two years, the prediction is that appreciation won't even see the left side of a decimal point.

Baltimore: Like its pricier neighbor to the south, Washington, D.C., Baltimore has seen double-digit increases in appreciation in recent years. But several reports indicate the market is overpriced compared to its history. Local Market Monitor indicates that prices are overvalued by 17%; Fortune's number crunchers forecast a slight increase in values for this year, followed by a small drop-off in 2007, perhaps signaling that prices have leveled off.

Denver: Gollis has been big on Denver for some time, seeing it as a market that went through a rough time -- it lost thousands of telecom jobs a few years back -- but it is returning to a level state. The market has caught the attention of national builders in recent years, there is major construction underway and the Stapleton Airport redevelopment is one of the largest projects of its kind in the nation. Yet the NAR reports that in a year when the vast majority of markets showed double-digit increases in appreciation, Denver's rate was 4.4%, and Local Market Monitor reports that it hasn't been above 5% since 2001. The good folks at Fortune predict that for the next couple of years, Denver's rate of appreciation won't see half that number.


The Denver one is right on. As an appraiser in a city just 45 minutes south of Denver I can vouche for it's decline in appreciation. I have fellow appraisers who have told me there are some neighborhoods that haven't appreciated at all in 2-3 years now and some homes have seen decreases of 10 to 25% in value. Imagine buying a $400k home and then it dropping in value to $300k, you are basically screwed unless you were able to put a butt load of cahs down when you bought it. This is what happened in some area of Denver when the telecom industry took such a hit. But, unlike Denver, my market is fine. As a matter of fact, due to base closings around the nation we are expected to get 15k to 20k new military personel in the area between the 5 military instalations we have in our town. We have Fort. Carson (Army), Perterson AFB, Shriever AFB, Norad, Space Command and, well, I guess you could even count the Air Force Academy. One good thing about having our nations primary defensive position in our city is the fact they will always keep military personel around it. LOL Of course, there is the flip side of that coin, it also makes us a primary target too.

[Testify]

TweetI am immediately skeptical when i don't see Boston on the list.

[T-Man007]

TweetThat's because Boston is on the deflate list. Check it out too.