But this is Chico, too

Are Chico houses overvalued? Absolutely. Will they ever be priced just right? The wishful thinker in me says “Absolutely.” The realist has a more tentative answer: “Perhaps eventually.”

A lot can change in a few years. An analysis released in June by National City Corp. and Global Insight found that as recently as 2002 Chico metropolitan area housing prices were slightly undervalued. But four years later, they had become 60 percent overvalued.

The report took housing prices, interest rates, household incomes and density into consideration. Even in 2006, Chico metropolitan area housing prices remain low compared to many areas in the state. In fact, our housing prices — $270,000 — were less than half of what they were in the Santa Barbara and Salinas metropolitan areas, where the average house costs more than $600,00O.

Our houses are overvalued mainly because average incomes are low here compared to larger metropolitan areas. I’m sure that’s why the analysis placed so many Central Valley metropolitan areas in the overvalued category. The Merced, Stockton, Madera, Modesto, Redding, Fresno, Yuba City Bakersfield and Sacramento metropolitan areas all had high rankings. Except for Sacramento none of these places has a dazzling job market. A clear pattern is emerging. The big discrepancy between incomes and housing costs places all of these areas at risk for a significant fall in prices.

Or is that just the wishful thinker in me, wanting to believe that I may one day be able to become a homeowner? I figure I need prices to fall about 30 percent — to about $180,000 — to be able to comfortably afford a house. Am I asking too much?

National City Corp. and Global Insight’s analysis says, yes, I may be asking too much. The report tracks price “corrections” 66 metropolitan areas experienced between 1985 and 1999. The typical drop in value was 17 percent. Only five metropolitan areas experienced a drop of more than 30 percent.

But the good news — for house-hungry people like me, at least — is that the average degree of overvaluation before a correction in those years was about 34 percent. By mid-2006, the situation had become more alarming. The housing markets in about 50 metropolitan areas in the country were overvalued by more than 50 percent. I’m thinking that “the higher the overvaluation, the harder they fall” theory may prove to be valid in the next couple of years.

There’s no question that we are heading into a period of price stability — or price stagnation as would-be sellers might call it. If prices stay flat and incomes rise, affordability will gradually improve. For most of the 1990s, Chico’s housing prices stayed about the same. Let’s hope the pattern repeats itself over the next 10 years. It would be a great boon to potential homebuyers.

As prices stabilize or move slightly downward, it will expose the fallacy of the belief that so-called slow-growth policies have been responsible for the runup in local housing costs.

In the first place, the Chico City Council — regardless of whether its majority has been liberal or conservative — doesn't shy away from approving housing developments. This is pretty much a pro-growth city. I know, I know. What about the green line and the hillsides? The time may come when they will restrain growth, but so far they haven’t.

In the second place, Chico’s prices haven’t gone up any faster than they have in places that take a willy-nilly approach to growth. San Bernardino and Riverside counties’ price increases mirror those of the Chico metropolitan area. But the Inland Empire is becoming a land where farming is a quaint relic of the past. All of the flat land is being paved over.

We in the north state don't want to imitate our neighbors to the south. If anything, we need to become more cautious and comprehensive in our approach to protecting farmland and other open space. We don’t want to become another California-style sprawl region. Now that housing prices are stabilizing, I hope we can enter a period when the idea of responsible growth planning won’t be muddled by the red-herring argument that we must build lots of houses in order to keep the prices down.