Housing prices in three markets Boston, San Diego and Ft. Lauderdale have increased to a level that cannot be sustained, according to a new economic yardstick designed to help builders, lenders and investors determine which parts of the country are overheated and in danger collapsing.

In addition, according to the Housing Cycle Barometer, 14 other markets are experiencing what Irvine, Calif.-based real estate consultant John Burns said are "small" housing price bubbles in relation to average incomes. Burns introduced the new index at the Pacific Coast Builder Conference in late June in San Francisco.

The California consultant's analysis is in line with that of most housing economists, who say that while price bubbles may crop up in a few housing markets, there is nothing to fear on a national basis. But he is the first to actually report which places are at the most risk.

On a scale of 1 to 10, Boston's situation was the most perilous. It rated a 9.3 on the housing price Richter scale. San Diego has a reading of 7.6; Ft. Lauderdale, 7.3

Burns said anything over 7.5 should be considered a "large housing bubble." But he also said that a collapse is not imminent in any particular market. In fact, he told the assembled builders not to be afraid to continue raising their prices.

At the same time, though, he suggested that ever-increasing prices cannot go on forever, and that eventually the bubble will burst.

"It won't happen tomorrow; I hope it won't happen for a while," the consultant said, noting that demographics, government emphasis on home ownership, constraints on new construction and strong employment growth all will serve to stave off any price correction for some time.

But when the end comes, he warned, the places with the greatest home price appreciation will take the longest to recover.

The barometer calculates two key ratios one between home prices and income levels and the other between annual mortgage payments and income. Then, the current ratios are compared to the mean ratio for the last 21 years in each area.

Of the 44 markets surveyed, 24 were not overpriced.

Surprisingly, San Francisco, which is generally considered the most over-priced housing market in the country, ranked only fourth on the housing cycle barometer with a 7.3 rating. Nearby San Jose was seventh at 6.9.

In another surprise, a number of relatively inexpensive places were ranked above 5.0, the point on the scale at which housing prices start to become inflated. Besides Ft. Lauderdale, which was in the 7.5 to 10.0 "large housing bubble" range, Miami, Tampa and Charleston, S.C., were in the "small" bubble category.

But Burns said his benchmark is "not a measure of expensive housing markets, but rather a measure of which markets are expensive in comparison to their own history."

MARKETS ON THE BUBBLE

Housing prices in 14 major markets throughout the country are out of whack in relation to household incomes and mortgage payments, according to industry consultant John Burns.

Source: John Burns Real Estate Consulting, Irvine California.

Published: July 10, 2002

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.

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