The problem with real estate market predictions

I am constantly amused by analysis such as this Housing Market Analysis from National City Corporation and Global Insight:

The report named Naples, Florida as the most overvalued of all housing markets in the United States. A single-family, median-priced home there sells for $329,970, 84 percent more than what it should cost -- $180,956 -- according to the analysis.

National City arrives at its estimates of what the typical house in these markets should cost by examining the town's population densities, local interest rates, and income levels. It also factors in historical premiums and discounts for each area. Other markets deemed wildly overpriced included Merced, California (by 77 percent), Salinas, California (75 percent), and Port St. Lucie, Florida (72 percent).

Pay particular attention to the section I bolded.  The analysis is highly inaccurate because it does not include 2 very important things:  Net Worth and Population Growth.  Net Worth is important because many Floridians are retirees with equity of $500,000 or more but who are also on a fixed income, perhaps $40,000 or less.  Second, Florida's population is booming as many people want to get away from the cold and many retirees are relocating to Florida.  In fact, one major driver of Florida home values are people relocating from New York where home values are at least twice that of Florida's prices.

Comments

[Scott]

Interesting perspective. I always enjoy looking back at how the experts said the year would turn out, especially the stock market, and compare that to how the market actually did. Looking back shows me that when it comes to investing, my guess is as good as anyone else's. I blog about it at http://mymountain.blogspot.com/2005/12/prospering-in-new-year-who-can-we.html

[john]

take a look at the rental rates and % of investor buyers in naples, you can't buy at $750K house and rent it for more than $1500 a month, so how does one justify the value of a house. people are buying $750K houses and selling them for $800K six months later. Or should i say WERE,,,talk to any investor w/ a $2500 mortgage and see how fast they will sell. Their just aren't that many millionaires around willing to pay $750K for a 3br/2bth house when you can buy a mansion for the same price in Tampa or plenty of other nice places...just an opinion.

[Scott Stein]

In your blog you say: "In fact, one major driver of Florida home values are people relocating from New York where home values are at least twice that of Florida's prices."

I know that this is true and I also know that it's true that New Yorkers are moving to Orlando specifically, but I cannot find statistical information anywhere to substantiate the claim that New Yorkers specifically are moving to Orlando specifically. Do you have the data or know where I can get it?

I would really appreciate any assistance you can offer me.

[Scott Stein]

In your blog you say: "In fact, one major driver of Florida home values are people relocating from New York where home values are at least twice that of Florida's prices."

I know that this is true and I also know that it's true that New Yorkers are moving to Orlando specifically, but I cannot find statistical information anywhere to substantiate the claim that New Yorkers specifically are moving to Orlando specifically. Do you have the data or know where I can get it?

I would really appreciate any assistance you can offer me.