The things Chicoans discuss

In the 20 years since I moved here from New York, I have not witnessed as much tongue-wagging as the buzz about Chico’s alleged “real-estate bubblette.” This topic is getting about as much discussion as the faster route to Sacramento being Hwy 99 or Hwy 70.

Most of us have heard or read about the report from National City Corp. that pegged Chico as having the most overpriced real estate in the nation. “There is no housing bubble in America,” said Richard DeKaser, chief economist for National City. “There is a growing risk of bubblettes in certain places.”

DeKaser’s study examines what home prices should be, controlling for differences in population density, relative income levels, interest rates and historically observed market premiums or discounts. Chico was identified as the largest bubblette in the country, “where a buyer will pay the highest premium for a home at 43 percent.”

If this study of the top 100 markets is valid, then Chico is the canary in the mineshaft. Since the study was published in February, real-estate prices in Chico have continued to rise. If there’s a bubblette, it might be like the emperor’s new clothes, where all of us see it, but no one wants to talk about what we see.

An insightful article in the May issue of Money magazine may help us to discern the validity of DeKaser’s bubblette theory. In this article, it said that between the fourth quarter of 2000 and 2004 United Kingdom home prices increased 88 percent, on average. Then, with little warning, the market cooled.

During this “pre-bubble popping” phase, lending to non-owner-occupied dwellings for renter-occupied housing units dropped like a rock. Between the first and second half of 2004, lending to investor landlords dropped 18 percent—compared with only a 3 percent drop for owner-occupied buyers. During that time, the number of such investors unable to meet their mortgage payments increased 50 percent.

If Chico is indeed the nation’s bubblette, then we should be on the lookout for changes in renter-occupied housing units. What would precede an increase in landlords unable to meet their mortgage payments? It would be an excessive number of rental vacancies. The number of classified ads for apartments, duplexes, houses, rooms, roommates and room & board might be an indicator of a leaking bubblette.

The number of rental units in the Sunday Enterprise Record was 360. I wonder how many rental unit ads were included last year in July 2004?