Real Estate

The Strongest and Weakest Housing Markets

Ten places where home prices are rising, and ten places where prices are tumbling.

By Pat Mertz Esswein, Associate Editor, Kiplinger's Personal Finance

December 2009

The housing market is showing some signs of recovery. Sales are up and prices have stabilized after falling for three years. The ten metro areas that enjoyed the greatest home-price increases over the past year (through June 30, 2009) largely missed the housing boom and didn’t indulge in subprime-lending excesses.

With no boom, these cities had no need to bust. Instead, their housing markets have plugged along at 4% annual price appreciation, below the national average of 6% annually between 1968 and 2008, according to the National Association of Realtors. Most of these areas are relatively small, with populations less than 200,000.

The ten metro areas that experienced the worst home-price declines over the past year represent the four states that had the biggest speculative bubble during the housing boom and bust from 2004 through mid 2006: California, Nevada, Arizona and Florida. The exception is Detroit, which tops the list. Its economy, dominated by the auto industry, was laid low by the financial crisis, recession and unemployment.

The top 10 markets

The number-one spot for home-price appreciation over the past year was Elmira, N.Y., where the economy puttered along through 2008 and avoided the recession longer than the rest of the country.

Texas makes a strong showing, with six cities in the top ten, reflecting the state’s population and job growth in recent years, much of it related to strong energy prices.

All of these cities had a rate of unemployment less than the national average of 9.5% in October ’09, according to the Bureau of Labor Statistics. Unemployment is one of the factors, along with affordability (the ratio of median home price to median household income), that Fiserv Lending Solutions factors into its home-price forecasts. Fiserv expects that home prices in these cities will flatten or grow only slightly through mid 2010, reflecting the shakiness of the larger, national economy.

SEE OUR SLIDE SHOW for detailed information about the top ten cities where home prices have risen.

The 10 worst markets

The three California cities of Merced, Modesto and Salinas, which lie in the state’s hard-hit Central Valley, epitomize the boom-bust phenomenon. Drunk on cheap financing, investors drove up home prices beyond the means of local buyers. And builders built new homes far beyond local economies’ ability to sustain demand.

Nearly all of the ten cities where home prices have fallen the most over the past year (except Phoenix) had an unemployment rate in October 2009 that exceeded the U.S. average of 9.5%, according to the Bureau of Labor Statistics. At Fiserv, chief economist David Stiff says their high unemployment rates reflect the loss of jobs by people in the construction trades, mortgage finance and retail trade catering to homeowners as their housing markets burst. Unemployment is one of the factors, along with affordability, that Fiserv Lending Solutions factors into its home-price forecasts. Fiserv expects these cities will experience a double-digit decline in their median home price during the year ending June 30, 2010.

SEE OUR SLIDE SHOW for detailed information about the ten cities where home prices have fallen the most.

For a detailed housing market outlook, see Glimmer of Light in Home Prices from the January issue of Kiplinger’s Personal Finance magazine. And use our tool to get median prices of existing single-family homes in 383 U.S. metropolitan areas.

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