Jacksonville #3 Most Overpriced Market

[Dapperdan]

Yahoo reports that Jacksonville Metro is the third highest overpriced market for real estate.

Where U.S. Homes Are Most Overpriced

Francesca Levy, Forbes.com

Dec 10th, 2009

Properties in these cities stay on the market longest, and sell for less than asking price.

Prospective buyers eying 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.
Full List: Where U.S. Homes Are Most Overpricedhomes2_419x98.jpg

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 when it went off the market. It differs very slightly from sale price, as not all sales in this category have necessarily closed. But data on absorbed homes is more current, because home sales can take months to close after the price is set. The data from Altos Research is 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 it exits 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 home buying 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.

"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, among the highest spread of all the cities we surveyed. Homeowners there simply can't afford to drop their prices.

Some of the cities that were ranked most overpriced, like Chicago and San Antonio, had about average discrepancies between asking price and sale prices. 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 metro, 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 home buyer tax credit have spurred demand among budget buyers.

"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."
America's Top 5 Most Overpriced Markets

1. Orlando-Kissimmee, FL Metro Area

2. Miami-Fort Lauderdale-Pompano Beach, FL Metro Area

3. Jacksonville, FL Metro Area

4. Baltimore-Towson, MD Metro Area

5. Chicago-Naperville-Joliet, IL-IN-WI Metro Area

[sheclown]

yikes, how did that happen?  I thought J'ville was traditionally underpriced?

[reednavy]

We're ahead of Tampa, is that even remotely possible?

[Dapperdan]

yikes, how did that happen?  I thought J'ville was traditionally underpriced?

The reason is that even with Jacksonville being under priced, that price fell and sellers are not recognizing that the market has changed. If a house was worth 200k that might be cheap compared to Miami but with the market tanking that house now is worth 100k and the sellers don't want to see that.

[finehoe]

The problem is financing.

No, the problem is thinking you can price a house at more than people can afford to pay based on their salaries.  No one should be paying more than two-and-half to three-times their annual salary on a house.  Offering freaky-deaky financing schemes to people to try and get around this is one of the things that got us into this mess.  The median household income in Jacksonville is $50,835.  That means the median price of a place to live should be around $150,000.  If it's more, then the market is overpriced, it's as simple as that.  Financing is irrelevant.

[sheclown]

The problem is financing.

No, the problem is thinking you can price a house at more than people can afford to pay based on their salaries.  No one should be paying more than two-and-half to three-times their annual salary on a house.  Offering freaky-deaky financing schemes to people to try and get around this is one of the things that got us into this mess.  The median household income in Jacksonville is $50,835.  That means the median price of a place to live should be around $150,000.  If it's more, then the market is overpriced, it's as simple as that.  Financing is irrelevant.

I've never heard anyone put it so plainly.  Thanks.  Makes sense to me.

[heights unknown]

I think this is all wrong; or someone was looking in the wrong area(s) when they compiled the stats.  I always thought that Jax was underpriced/low priced as well.  Maybe they compiled their data from San Jose, San Marco, and the Southside.

"HU"

[Ocklawaha]

We're ahead of Tampa, is that even remotely possible?

I don't know, if the St. Johns River REALLY flows north because Georgia Sucks, then I guess the Hillsborough River flows west because TAMPA SUCKS!

Has it occurred to anyone yet that every single one of these Forbes "reviews" ends up with a huge percentage of the South losing out. Wouldn't be the first time I've crossed swords with the boy's from Forbes... FORBES SUCKS!

I think I would consider this overpriced, where are "they" on the survey?

MOUNTAIN VIEW, CA. RANCH STYLE HOME
   $848,888
Bed(s):
   4
Bath(s):
   3
Type:
   Single Family Home
Sq/Ft:
   1,637
MLS Number:
   80954374
Age (years):
   63

Bottom line? MOUNTAIN VIEW SUCKS!

"NEXT!"


OCKLAWAHA

[vicupstate]

In the 90's Jax was very reasonably priced for real estate and the national stats reflected that.  In the 2000's with the real estate bubble, that went out the window.  That has corrected itself to a significant degree, but this ranking reflects that it is probably still a factor, plus the data is probably a few months old too.

It's no coincidence that the top three are all FL, which experienced the bubble to a bigger degree than nearly all other states.

[mtraininjax]

A local realtor, Lee Hughes, is also an investor. Every month he has a great email out that shows the number of Residential sales and median price for that month. Its a chart that shows that prices, over the last year, 2009 have fallen from 180k to 120k, median pricing, here in Jax.

Studies are like rear-ends and you never know where they pull their data from. Lee pulls his data directly from NEFAR/MLS so its timely and more accurate than some poll where data was pulled from Mars. When it comes out again, I'll see if I can post a copy. Lee would be a great addition out here as well.

[finehoe]

Yes, interest rates and downpayments effect the affordability of any given property to an individual buyer, but that is not the same thing as whether the market itself is under- or over-priced.  From the end of WWII to the start of the housing bubble, the ratio of income to house prices in any given community held pretty steady at 2.5-3.0:1.  Interest rates were all over the map during that time period, and while they influence what individuals pay, they have no bearing on whether the market in aggregate is priced higher or lower than what it "should" be given local incomes.

[Bativac]

Gotta agree with Finehoe -- financing isn't the issue. Why should someone making $42k a year be approved for a $400k mortgage loan? Many of my co-workers bought homes in their early 20s, just because they could, and are now wanting to move to other cities for job opportunities but are "underwater" (as they say) on their homes, owing more than the places are worth. If they had waited (like a few of us did), saved a down payment, and bought homes this year, opting for something they could realistically afford (say in the $150k range) and educating themselves on the market with the help of a savvy realtor, they'd be in better shape.

My fiancee and I bought our first home in September. 2700 sq ft, built in 1958, brick-and-plaster. It was originally listed at $225K but they came down more than $75k when all was said and done. I wonder how much of that type of drastic reduction in asking price is happening?

[seadog]

As a real estate and mortgage broker for over 15 years in this market, I would add these points.
1) We have a 20%+ functional underemployment rate, price is a function of supply and demand,
our city is a huge market of nearly 4000 square miles ( 5 county SMSA) , mortgage qualifications have tightened.
2) DO NOT BELIEVE THE MEDIA, stories are being controlled by the NAR and Mortgage Industries, ask the insiders at the T-U !

[Dog Walker]

Seadog, I see your points, but do not understand the full import of them.  Can you expand a bit?

[JaxNative68]

All of the Jacksonville cookie cutter neighborhoods are overpriced for what they are.  The majority of the houses in these neighborhoods are loaded with faux architectural details, built of foam and stucco, which are used in the wrong locations and/or with the wrong interpretation.  Unfortunately, the majority of the owners of these houses purchased them with a blind eye.  Just seeing the surface imagery and not the substance, not realizing the actual construction and materials used are very cheaply done, thinking it made them look sophisticated and well to do.  To them it was all about more square feet and image.  Now that the market has tanked back to where it should be, these people don’t want to admit they made a terrible and rash investment, so they stick to their guns stating their houses are still worth what they were during the peak market days.  These people need a reality slap!