Now What?

Home prices: Heading for a decline?
Local housing market extremely overvalued'

By Michael Levensohn
Times Herald-Record
mlevensohn@th-record.com

Home prices in Orange, Dutchess and Ulster counties are "extremely overvalued," and at high risk for a fall, according to an economist's study published last week.
Richard DeKaser, chief economist of National City Corp., a Cleveland bank, studied first-quarter housing prices in 299 metro areas that represent 80 percent of the U.S. housing market.
Both the Orange-Dutchess county area (37 percent overvalued) and Ulster County (32 percent overvalued) were among the 53 regions deemed "extremely overvalued" and therefore most vulnerable to a price decline.
DeKaser calls an area extremely overvalued if prices are 30 percent higher than what he calculates as a fair value based on average household income, interest rates, housing density and historical prices.
The study confirms something folks around here have long suspected.
"A person who works in Orange County can't afford to live here," said Steve Chewens, broker/owner of Chewens and Associates Real Estate in Chester.
Chewens and other real estate agents have seen an increase lately in price reductions on home listings, as well as listings that expire without a sale, evidence that the balance of power in the region's long-running seller's market has begun to shift.
DeKaser's study suggests there's a strong likelihood that the shift could turn into a full-fledged bear market, with home prices in the mid-Hudson going backward.
Over the past 20 years, he found 63 corrections, instances where a market's median price fell 10 percent or more over a period of at least eight quarters.
The typical degree of overvaluation in those cases was 30 percent.
"How many went that high without a correction?" said DeKaser. "Zero."
Of course, past performance doesn't guarantee future results. But it does suggest that prices are due for a fall.
"A little air could be let out of the bubble without it being a cataclysmic event," DeKaser said.
From 1985 to 2005, the typical decline in a correction was 17 percent. The typical duration of the down cycle was 13 quarters, according to the study.
The Orange-Dutchess area holds the dubious distinction of having suffered through the longest correction of the 63 DeKaser identified – a bear market that stretched from the first quarter of 1988 to the first quarter of 1995 and saw prices drop 13 percent.
Ulster County's most recent bear market was an 18 percent decline between the fourth quarter of 1992 to the first quarter of 1995.

Behind the numbers
Economist Richard DeKaser studied first-quarter 2005 housing prices in 299 metro areas and identified 53 where the median sale price for single-family homes was at least 30 percent higher than expected.
For instance, during the first quarter of 2005, the median sale price for single-family homes in the Orange-Dutchess area was $265,845, while DeKaser's pricing model yielded an expected median of $193,429.
The Kingston area's median sale price was $196,203, compared with a modeled price of $148,183.
The sale numbers are drawn from federal data tracking repeat sales of existing homes. This method provides a better barometer of the change in an individual home's value, because, unlike board of Realtors' data, it isn't skewed by relatively pricey new construction.
According to the Orange County Association of Realtors, the median sale price of single-family homes in Orange was $299,000 during the first quarter, up 15 percent from the first quarter of 2004. In Ulster County, the first quarter median was $228,000 up 21.3 percent from a year before.

Think home prices are high here?
Check out California.
Of 53 "extremely overvalued" housing markets identified by economist Richard DeKaser, 25 are located in The Golden State. Leading the pack is Santa Barbara, with its median sale price of $564,100 overvalued by 69 percent.
Of the top 20 overheated markets, 16 are in California, with two in Florida and one in Massachusetts and in Oregon.
New York's most overvalued market is Nassau-Suffolk (ranked 29th at 42 percent), followed by Orange-Dutchess (37th at 37 percent) and Ulster (45th at 32 percent).
The New York City region, which includes the five boroughs plus six surrounding counties, ranked 68th, at 25 percent overvalued.
Buffalo, Syracuse, Binghamton and Rochester are all undervalued, according to DeKaser's report.