Where U.S. homes are most overpriced
Properties in these cities stay on the market longest, and sell for less than asking price.
Prospective buyers eyeing real-estate deals in foreclosure-ridden Florida, where home prices have plummeted and unsold properties clog the market, might find fewer bargains than they'd expected. That's because sellers in Orlando, Miami, Jacksonville and Tampa are likely to put their properties on the market for more than what they're worth.
They're not alone. In these markets and elsewhere across the country, homeowners still have an inflated sense of what their properties will fetch. Only 49% of U.S. homeowners believe their home's value has decreased in the past year, whereas prices have plunged for 72% of homes, according to a survey released last month by Zillow.com.
"Sellers are notoriously slow to adapt to declining market conditions," says Jonathan Miller, president and CEO of Miller Samuel Real Estate Appraisers. "Another way to look at it is that they're chasing the market down."
Behind the numbers
To find the cities with the most overpriced homes, we ranked the 40 largest Metropolitan Statistical Areas — geographic entities defined by the U.S. Office of Management and Budget, for use in collecting statistics — in four measures. Using data provided to Forbes by Altos Research, a Mountain View, Calif.-based real-estate research firm, we ranked each metro on the percentage of homes that had seen price reductions, an indicator of inflated pricing; the median number of days spent on the market (the longer homes stay on the market, the more likely they are to be overvalued); and the ratio of median list price (or asking price) to median absorbed price.
The absorbed price of a home is what it was priced at when it went off the market. It differs slightly from sale price, as not all sales in this category may have closed. But data on absorbed homes are more current, because home sales can take months to close after the price is set. The data from Altos Research are based on a 90-day rolling average as of the last week in November.
We also included the five-year forecast for the percentage change in the S&P/Case-Shiller Home Price Index, from Moody's Economy.com. In markets where home prices are expected to rise precipitously, a home priced above the average sale price may earn its investment. Thus, we ranked homes with a positive housing outlook as less overpriced. We averaged the scores for these four measures to arrive at a final ranking.
Trouble moving pricier homes
In some markets, a glut of unsold high-end homes causes a discrepancy between a metro's median asking price and the median price at which homes exit the market. Miami, the second-most-overpriced city, illustrates this trend. The median asking price here is high, at $490,197 (by comparison, the median asking price for the Altos 20-city composite, a measure used by the firm to approximate national prices, is $390,939). The homes going off the market sell for 19% below asking price.
The problem is financing. Although government stimulus programs have spurred some homebuying activity in the lower-priced market, would-be buyers of more expensive homes are strapped for credit. In most markets, including Miami, Fannie Mae considers loans for homes above $420,000 or so to be "jumbo loans" that typically have higher interest rates. As sales of these homes are tight, home prices are hit — but prices are slower to budge.
"The high-end market is going down more than the overall market, but sellers in that market don't necessarily see themselves as being different from other sellers," says Miller. "So it's causing the spread between the ask price and contract price to widen."
In Orlando, the most overpriced large metro by our measures, homes are listed at 43% higher than what they sell for — a median $202,381.
Bing & decide
"The demand in Orlando is really only for the least expensive properties," says Mike Simonsen, CEO of Altos Research. "The market as a whole is overpriced, in that people are not buying on the high end, they're buying on the entry level."
Underwater can become overpriced
But that doesn't mean that cheaper homes are moving faster in all markets. The 23% of American homeowners who owe more on their homes than what they are worth would be unable to pay back their loans if they budged on their asking price. Most have no choice but to wait out the market, even though values continue to drop.
"The people selling now are the people that have to sell," says Miller. "Some sellers simply can't adapt to the market. Maybe they bought a year ago and now they're underwater. They will wait."
Take Phoenix, the No. 12 most overpriced city, where 64% of homeowners are underwater, according to Zillow.com's most recent Negative Equity Report. In that metro, homes are listed for 22% more than when they are sold for, among the highest spread of all the cities we surveyed. Homeowners there simply can't afford to drop their prices.
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Some of the cities that were ranked most overpriced, like Chicago and San Antonio, had about average discrepancies between asking price and sale price. By the strictest definition, they aren't tremendously overpriced. But red flags fly for other, more subtle signs that their list prices may be out of whack.
In the largely healthy Chicago metro, rampant overbuilding in suburbs like Naperville has kept homes on the market for an average of six months — sellers aren't pricing them to move fast. In San Antonio, 42% of homes have knocked asking prices down, a sign that the market disagrees with sellers on their initial price.
"There's the straight list-to-absorbed price ratio, but a lot of metros are in this common range of about 115%," says Simonsen. "So then you have to look at other factors, like how many homes have price reductions."
Las Vegas, a market that has yet to emerge from the wreckage of the foreclosure crisis — one in every 68 homes was in foreclosure in October, according to RealtyTrac — is among the least overpriced large metros, a fact that may seem surprising. But although its housing market may take a long time to recover, homes are listed at a median $168,161, far lower than most large metros, suggesting that sellers have gotten pragmatic about pricing. And government initiatives like the first-time homebuyer tax credit have spurred demand among budget buyers.
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"In Las Vegas, it looks like homeowners are pricing homes to clear the market," says Delores Conway, a visiting real-estate economist at the Simon School at the University of Rochester. "And it's because there's financing available at the low end."
Sellers don't necessarily cling to optimistic asking prices out of stubbornness or cluelessness. Many can't change their price — either because they're trapped in a slow-moving high-end market, or because their homes are underwater, and selling at a loss isn't an option.
"People don't have negotiating power," says Miller. "They're not being greedy, but they just can't be as flexible as the market demands."
The 10 most overpriced metro areas
1. Orlando-Kissimmee, Fla.
2. Miami-Fort Lauderdale-Pompano Beach, Fla.
3. Jacksonville, Fla.
4. Baltimore-Towson, Md.
5. Chicago-Naperville-Joliet, Ill.-Ind.-Wis.
6. San Antonio
7. Denver-Aurora, Colo. (tie)
7. Tampa-St. Petersburg-Clearwater, Fla. (tie)
9. Indianapolis-Carmel, Ind.
10. Austin-Round Rock, Texas (tie)
10. Nashville-Davidson-Murfreesboro-Franklin, Tenn. (tie)
I am not sure I can follow the article.
Compatable homes from "top 10 overpriced" areas are still cheaper and more affordable than in Boston, New York (don't get me started on this one) and San Francisco.
I HATE snow/cold weather. Makes me crazy. Been trying to move to a beach/desert (Arizona/Florida, etc) for years. But now all those places have the housing & job markets that are most screwed!
The lowest unemployment/foreclosures- North Dakota/South Dakota? I'd rather live in a cardboard box and be unemployed than live there.
Record High Defaults=CHECK
Record High Foreclosures=CHECK
Record Low Sales=CHECK
Record Price Declines=CHECK
DO NOT buy any housing right now. There is no stabilization in housing until we get back to early 1990's prices, possibly even early 1980's.
Let housing prices and rental rates collapse and don't get in the way.
California based study, yet not one California city listed. Maybe while they were jogging around there overpriced (halve empty) office building for an hour & half for lunch, they didn't notice the prices in there own neighborhoods.
Most real estate in CA has dropped anywhere from 45-75% since the peak of the bubble. Many areas are actually reasonably priced now, even given the horrendous unemployment rate (which is stabilizing and improving, albeit slowly, in many areas of the state). Sellers have become realistic here. They had to. You can ask for a 5- 10% premium, but that's it. A house will not well sell without a fair market price based on the comps., and everyone here knows this... Then again, we have been in a recession for 2 1/2 - 3 years, and that has led to a healthy yet painful re-evaluation of the housing market. It's been a nasty correction. However, homes in most counties are affordable again for those who have 20% down and a steady income of 60-70K (a 65-75% affordability index is common in many areas), so we'll see more stabilization and slow improvement over the next 2-4 years.
Sellers in places like Orlando have to face the awful truth and let go....If you want to sell, you have to price the home right. That's the message of the market in places like Las Vegas and LA...and the main message of the article.
Hope you all have a Merry Christmas...God bless you and your loved ones...
1) One of the reasons for the drop in home prices in Florida is the difficulty of getting homeowner's insurance after the rash of hurricanes the last few years. Banks won't underwrite a loan for a home unless it is insured. People don't buy homes for the purchase price, they buy the monthly payment, and when homeowners insurance premiums skyrocket it means the less monthly mortgage payment that someone can afford which pushes the market lower.
2) You make it sound as though it's just individuals that are unwilling to sell homes for less value, however it's the banks that are unwilling to sell them for less than what is owed. Has anyone tried to buy a short sale? There is a reason why they take months and rarely close. The banks, or whomever owns the securities that the loans have been packaged into, are the ones not willing to take the loss and thus still holding onto inflated prices.
And, like someone posted earlier, where are CA cities? I think it is because they based it on percentages of homes values, so yes, the spread of 20% in some cities when it is $200K vs $240K may be a greater %, but here in LA 20% means $150-300K, not $40K. Also, because such a high % of the market in coastal CA rents simply due to lack of affordability, prices can only fall so far before the demand kicks in. In coastal CA there is no overbuilding like in other markets because there was no available land so it's not an oversupply issue like other markets.
How about Appraisal Management Companies & Automated Valuation Models. How the hell did prices get up that high anyway? Instead of letting the “free market” take the Ponzi players under, they look the other way and prop them up with our money. The SEC turned the other way while Wall Street engineered the heist of the Millennium. The MBS, CDS, CDO "casino" style market manipulation has come home to roost. Most borrowers were not told that the financial instrument they were being sold was actually a securities trade that they were initiating.
The mortgage pools were insured heavily via AIG/AMBAC, etc. So a $300k home (that was overappraised) could be insured up to 30 times value, that is why they need people to default... they COLLECT THE DEFAULT INSURANCE. There are multiple players and multiple interests in securitized loans. There are issuers, underwriters, master servicers, trustee, etc. This was a securities ponzi scheme on which (upon the collapse) the US TAXPAYER was left to foot the bill for reckless, speculative gambling interests of a few greedy fools! In the S&L crisis (RTC) bailout they allowed million dollar office buildings and commercial properties to be re-appraised down to what the asset was really worth. So your $5M office complex is reappraised down to sub-$1M and the taxpayers foot the $4M+/- loss.
FIRREA came after the S&L crisis (Financial Institution Reform Recovery Enforcement Act) and was gutted like Carolina catfish, leaving loopholes just where the wealthy banking and financial wizards knew to find them! We got plenty of s**t cake and ice cream stories from Main-Stream-Media telling people all about RECORD GAINS RECORD GAINS and MORE RECORD GAINS in the housing market. Not a pundit in sight. Same thing with the Govt. talking heads promoting the hell out of buying a piece of the American Dream.
To blame: (this is by no means all-inclusive, obviously hind sight is 20/20) tight zoning and land use regs, rampant speculation, AMC’s, AVM’s, Title Mills, Legal Boiler Shops, the legislative and executive branches of our government, the FED, the SEC & the Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999 which repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies.
Glass-Steagall prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company. The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms and insurance companies to consolidate. For example, Citicorp (a commercial bank holding company) merged with Travelers Group (an insurance company) in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica and Travelers.
This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act of 1956 by combining securities, insurance, and banking, if not for a temporary waiver process. The law was passed to legalize these mergers on a permanent basis.  (Wikipedia)
The solution: RUN FOR OFFICE. Really… run for a position in the next election cycle. Mayor, Council Member, Commissioner, state or congressional rep, whatever!!! LivingLies dot Wordpress dot com & tawebster dot spaces dot live dot com to learn more.
I OWEN A 2007 HOUSE IN FLA. AND AT THE PECK IT WAS WORTH ABOUT $260000 AND NOW ITS WORTH ABOUT $118000 AT LEAST THATS WHAT ZILLOW SAYS ITS WORTH. I PAYED $160000 FOR IT AND I OWE $110000. SO I WENT FROM HAVING $150000 EQUITY TO NOTHING DAMIT!!! BUT I AM NOT UNDER WATER YET PLUS I DID DOUBLE MY MONEY ON A CONDO I BOUGHT AND SOLD DURING THE BOOM SO I CAN'T CONPLAIN!! I HEAR ABOUT 70% OF THE HOUSES IN MY AREA ARE UNDER WATER. I AM GLAD I AM NOT PLANNING TO SELL MY HOUSE IN THE NEXT FIVE YEARS, HELL!! OVERPRICED THEY ARE GIVING THEM AWAY DOWN HERE!!!! FORBES IS FULL OF ##### DAMIT
Oh and by the way chrismyboy, upstate has plumbing and in most cases it works better than what you find in the cities, with out a doubt.
Also folks lets be real, these people who do these don't really look this stuff up or the get inflated info from old college buddies or politicians, the people who do this really don't care , come on look who the work for!!!
AH, Yes Ca is having big problems and there are no over priced homes??? RIGHT!!
I have been in construction and worked all over the country for over 30 yrs and there is NO HOUSE worth what they are asking for it. I have watch realtors talk people in to listing or telling people what their house is worth so they can make more on commissions. Put the blame where it belongs, greedy builders, realtors and people stupid enough to fall for it.
"What is it worth??" is the catch phrase. 30 years or even 20, homes were in a range that middle class could afford them. " LIVING THE LIFE" what is wrong with you people, what is it worth if it is only a show. People buy houses that are not worth it then loose it, for what???
American, you the people got yourselves in to this by tiring to be something you not, bigger houses, cars, trucks and SUVs. give it a rest and come back to earth!!!