Phil Lewis: Here's why we ignored 'over-valued' realty story

It earned a mention on the front page of USA Today and it was the top story on at least one 11 o'clock newscast, but you didn't see anything about it last week in the Daily News.

It was a story about Naples having the most "over-valued" real estate market in the nation.

No. 1 in the nation.

Sounds like a big story.

Why wasn't it picked up by the Daily News? Did we bow to those local Realtors who howl anytime they see a headline that might indicate we have a problem — any kind of problem — in Southwest Florida? Did we keep "a lid on it" because such news would some how hurt our advertising revenues? We've heard both.

The real reason we didn't report on the report — until now — is that it confused us. In fact, we are still scratching our collective heads.

The story published in the USA Today under the byline of Sue Kirchhoff started out:"Single-family homes in 71 U.S. cities were extremely overvalued in the first quarter of 2006 and at risk of price correction, with the costliest properties clustered in California and Florida, economists said Monday." Farther down in the story, Kirchoff reported:"Naples, Fla., Salinas, Calif., and Port St. Lucie-Fort Pierce, Fla., were the three most overvalued markets, according to the report." The story was accompanied by a chart listing the Top 10 under the headline "Out-of-whack prices." Naples was atop the list with a price of $383,000, which was pegged as being 102.6 percent above what it should be.

What it should be? This confused us six months ago when we and other newspapers published a similar report saying that single-family homes were "over valued" in Naples.

Isn't the value of a house — or anything for that matter — exactly what you can sell it for? If a house sells in Naples for $383,000, isn't that its value? To add to our confusion, the USA Today story said the median price of a Naples house was $383,000. We just completed an exhaustive investigation into housing prices in Naples and Bonita Springs as part of our affordable housing reporting project. We found that the median price of a house in Collier County is at least $100,000 higher than the number quoted in USA Today. Sales figures reported on a monthly basis by the Florida Board of Realtors agree with us. The median price for a Naples home is about a half-million dollars, not $383,000.

That's truly alarming. Naples leads the nation in "over-valued" home prices even when you use a low-ball number for what a house really costs.

It was enough for us to spike — an old newsroom term — the story until we could do more checking.

We found that the press and television reports were based on a quarterly analytical report put out jointly by Global Insight and National City Corporation, two private research firms.

The 22-page report explains that the price — $383,000 in Naples case — was calculated by taking sales figures available through the Federal Housing Enterprise Oversight Office and "excluding the influence of mortgage refinance activity." We think something else was excluded — or included, perhaps the price of residential docks or new additions to single-family homes that required a building permit. The inclusion of either one would result in a low-ball value of what houses truly cost.

Also, USA Today used the term "median price," but that term was not used in the Global Insight report. The home price for each city is simply listed as "price" without the word "median." We're still checking that part out.

The report did explain how "over valued" was determined.

"Our approach to determining statistically normal house values considers not only house prices and interest rates, but household incomes, population densities and any historical premiums or discounts metropolitan areas have exhibited over time," the report states.

"After determining what house prices should be in this statistically normal sense, we compare those theoretical prices to actual prices to determine the extent of over-or under-valuation." So, the report took what wager earners make in Naples and calculated what a house should cost. Then, it compared that number to the price of a house in Naples and concluded that Naples has the most over-valued real estate in the nation.

That's an interesting spin. What the study really shows is that people who work for a living in Naples are having trouble buying a house. You could say Naples leads the nation in the need for affordable housing.

That's a story we have published.