Tuesday, August 12, 2003

Forbes magazine has an interesting article out in which it ranks the "most overpriced places 2003" in the US as a function of the local cost of living, average local salary growth (or lack thereof) over the last 12 months and five years, and local median home sales prices in 2002:IV. The results present a list of US cities ripe for a housing bubble collapse. The top 10 overpriced cities in order are:
  1. San Jose, CA
  2. San Francisco, CA
  3. Honolulu, HI
  4. Bergen-Passaic, NJ
  5. New York, NY
  6. Boston, MA
  7. Chicago, IL
  8. Milwaukee, WI
  9. Los Angeles, CA
  10. Seattle, WA
Except for Chicago and Milwaukee, all these cities are on the coasts, exactly where the housing bubble exists in the United States. What makes this index so interesting is that it isn't simply a measure of housing prices, but of affordability -- that is, it takes the local cost of living and local salaries into account. Maybe the 57% rise in housing prices in Denver over the last five years, or the 56% rise in Miami, or the 70% rise in Minneapolis-St. Paul are not too worrisome because they are matched by rising salaries. But in five of the seven largest metro areas of the country (New York, Los Angeles, Chicago, San Francisco, Boston), the story is much more grim.

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