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THE LATEST. 5 Bubble-Proof Markets These superstar cities outperform the rest of the nation over time, thanks to healthy economies and rising incomes. About the last place a prospective homebuyer might want to peruse MLS listings these days is in one of the country's most expensive markets, like San Francisco , where the median cost of a single-family dwelling has jumped 37 percent since 2003. (It's now more than triple the national figure.) A couple of leading economists, however, think buyers shouldn't be intimidated, even if prices in these markets go into a slump. San Francisco, New York, and a small handful of other big cities may suffer dramatic swings in a downturn, but their long-term trends "are so strongly upward that if you're willing to buy and hold, it's a good strategy," says Todd Sinai, an associate professor of real estate at the Wharton School and coauthor of a recently released study called "Superstar Cities." The same logic, Sinai says, applies in other inflated markets like Boston , Los Angeles , and Seattle . Here are 5 bubble – proof markets: According to Joseph Gyourko, who coauthored the study with Sinai, living in these areas is akin to owning a scarce luxury good. "If you think of these cities as factories for high-income households," Gyourko says, "then the demand for luxury goods will continue to rise as long as you're creating rich people." Another way to put it is that the growing wage gap between rich and poor Americans is being mirrored in real estate, and the income schism is especially exaggerated in wealthy cities with little new construction. On the opposite end of the spectrum are places like Las Vegas , which, despite the huge run-up in prices in recent years, is adding more than 30,000 new homes a year, and where the growth in wealthy households lags behind the national average. Since the 1980s, the proportion of households in Vegas earning $110,000 or more a year barely grew; in San Francisco , it's jumped by more than 20 percent. * National average annual home appreciation: 2.3 percent San Francisco If developers were allowed to go all out with building on San Francisco's Treasure Island, Presidio and the Marin Headlands across the Golden Gate Bridge, the price of housing would fall close to the cost of construction. But those pristine natural amenities are the product of one of the most anti-development political cultures in the country - and a perennial magnet for the highest earners. Los Angeles Along with San Francisco, Los Angeles was the first major metro in the United States to become "filled up” during the 1960s and 1970s because of geographic constraints and political restrictions on building. Three-quarters of new construction is now in-fill development, and much of it is high end. The gentrification is pricing out middle and lower income families, who are moving in-land. Seattle The newest graduate to join this elite class of super-expensive cities, Seattle is the least likely to hold its place. New zoning laws approved by the city council this year lift restrictions on building heights in the downtown core, and promise to generate $100 million worth of affordable housing. Boston Boston had the strongest wage growth of these cities through the tech bust and jobless recovery. Over the next five years, it will have the highest per capita income, next to San Francisco . New York City The force with which middle class households here are getting replaced by wealthier ones was reflected in the recent hysteria over the Tishman Speyer group's $5.4-billion acquisition of 110 apartment buildings in lower Manhattan, the largest real estate deal in recent history. The apartment blocks are home to thousands of rent-controlled tenants who should have been priced out of the city years ago - and fear they now will be by market rents under the new owner. Five of the cities on the Bottom 10 list are from this region, making the long rural stretch of Highway 99 between Sacramento and Bakersfield look like a treacherous real estate ditch. Home prices shot up here by as much as 60 percent during the past two years as big homebuilders, squeezed out of the Bay Area and Los Angeles by lack of space, arrived in search of raw land at bargain prices. Problem is, the Central Valley 's base industry (agriculture) creates the lowest-paying jobs, and chronically high unemployment rates persist throughout the region. "A market where housing has increased by so much so fast when unemployment is that high is unsustainable," says Frank Owens, who sits on the board of Fresno 's builders association. "This market is going south." Southwest Florida A typical home goes for $500,000, and prices rose 25 percent last year. A local economy with a thin base - retirees - can't sustain the heat. The Jersey Shore Prices here soared as Philadelphia commuters bid for condos against second-home buyers from across the Eastern Seaboard. But the latter group usually tries to get out from under mortgage No. 2 when interest rates start climbing. Phoenix California's Inland Empire The housing and construction boom has been the main driver of employment growth for this region east of Los Angeles . Now job losses from the slowdown will stagnate demand. Source: Moody's Economy.com The Bottom 10 |
