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55 housing boom towns
A government study finds there are more white-hot real-estate markets than ever and says that easy credit could make any busts worse.
By MSN Money staff and wire reports
The number of areas across the United States with real estate booms grew nearly two-thirds last year to 55, the Federal Deposit Insurance Corp. said, warning that these booms may be followed by busts.
The boom areas represent 15% of the 362 metropolitan areas the Office of Federal Housing Enterprise Oversight analyzes, the highest proportion of boom markets in 30 years of price data and more than twice the peak of the late-1980s booms. California had 21 of the 55 boom markets in 2004; Florida had 11 and the Northeast had 18.
Boom areas were defined as having inflation-adjusted prices at the end of 2004 that were up 30% or more in three years.
Adding recent data and analysis to a study released in February, FDIC economists Cynthia Angell and Norman Williams repeated their view that credit market conditions may make current housing market booms different than past ones, which have tended to taper off rather than bust.
"To the extent that credit conditions are driving home price trends, the implication would be that a reversal in mortgage market conditions -- where interest rates rise and lenders tighten their standards - could contribute to the end of the housing boom," they say.
Busts are relatively rare
The FDIC economists found that only 17% of local U.S. housing booms in the 1978-1998 period ended in busts, defined as a 15% or greater drop in nominal home prices over five years. This economic stress as economies stumbled in Oil Patch states weighed heavily on their housing markets. In the worst cases, nominal home prices fell by 40% and 33% in Lafayette, La., and Casper, Wyo., respectively, between 1983 and 1988.
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The authors said that stagnation is often the most likely outcome, with prices stalling out until local incomes catch up.
But the updated study, released Monday, also notes special qualities of the current boom, including the large number of boom markets across the country and a risky credit environment.
While the previous FDIC study on the subject in February emphasized local market factors for historical boom and bust cycles, recent past experience signals possibly broader ranging causes.
"The notable expansion in the number of boom markets in 2004 suggests that national factors could be helping to drive home prices higher," the updated study says. "If national factors are coming more into play, then clearly the most important factors to look to would be the availability, price and terms of mortgage credit."
Is it different this time?
Among special risks the FDIC has found in the current credit market are increasingly leveraged new home purchases, more use of adjustable rate mortgages, growth of interest-only mortgage payment plans and accelerating growth in subprime mortgage lending. Subprime loans now account for 10% of all mortgage lending, authors found, and buyers now leverage more of the cost of a home. The percentage of loans exceeding 80% of a home's purchase price has grown to more than 30%; in some cities, the percentage tops 50%.
The study also cited more purchases of homes strictly for investment as a sign of increased speculation in the market last year.
| Boom towns 2004 | | Area | Peak 3-yr rise | Area | Peak 3-yr rise | | California | % | Other Northeast | % | | Bakersfield, CA | 47 | Hagerstown-Martinsburg, MD-WV | 30 | | Chico, CA | 49 | Atlantic City, NJ | 40 | | Fresno, CA | 58 | Baltimore-Towson, MD | 36 | | Hanford -Corcoran, CA | 38 | Kingston, NY | 41 | | Los Angelas-Long Beach, CA | 53 | New York-Wayne-White Plains, NY | 33 | | Madera, CA | 57 | Ocean City, NJ | 44 | | Merced, CA | 43 | Philadelphia-Camden-Wilmington, PA-NJ-DE-MD | 30 | | Modesto, CA | 44 | Poughkeepsie-Newburgh-Middletown, NY | 41 | | Napa, CA | 46 | Trenton-Ewing, NJ | 32 | | Oxnard-Ventura-Thousand Oaks, CA | 53 | Virginia Beach-Norfolk-Newport News, VA-NC | 31 | | Redding, CA | 52 | Washington-Arlington-Alexandria, DC-MD-VA-WV | 40 | | Riverside-San Bernardino, CA | 58 | Winchester, VA-WV | 35 | | Sacramento-Arden-Arcade-Roseville, CA | 47 | Florida | % | | Salinas, CA | 49 | Cape Coral-Fort Myers, FL | 38 | | San Diego-Carlsbad, CA | 55 | Deltona-Daytona Beach-Ormond Beach, FL | 35 | | San Luis Obispo-Paso Robles, CA | 46 | Fort Walton Beach-Crestview-Destin, FL | 32 | | Santa Barbara-Santa Maria, CA | 53 | Miami-Fort Lauderdale-Miami Beach, FL | 45 | | Santa Cruz-Watsonville, CA | 48 | Naples-Marco Island, FL | 35 | | Vallejo-Fairfield, CA | 38 | Palm Bay-Melbourne-Titusville, FL | 43 | | Visalia-Porterville, CA | 45 | Panama City-Lynn Haven, FL | 30 | | Yuba City, CA | 56 | Port St.Lucie-Fort Pierce, FL | 54 | | Other Western | | Punta Gorda, FL | 42 | | Carson City, NV | 44 | Sarasota-Bradenton-Venice, FL | 37 | | Las Vegas-Paradise, NV | 43 | Vero Beach, FL | 38 | | Medford, OR | 31 | Other | % | | Reno-Sparks, NV | 41 | Honolulu, HI | 35 | | New England | % | | | | Barnstable Town, MA | 48 | | | | Boston-Cambridge-Quincy, MA-NH | 38 | | | | Norwich-New London, CT | 31 | | | | Portland-South Portland-Biddeford, ME | 30 | | | | Providence-New Bedford -Warwick, RI | 46 | | | | Worcester, MA | 34 | | |
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Source: FDIC
*Areas where real home prices increased at least 30% from three years earlier. Number in chart shows peak increase.
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