Take a quick look at America’s hardest-hit housing markets, and you might think you’re looking at some once-in-a-lifetime bargains. Miami down by almost half from its peak? Las Vegas off 55 percent and Phoenix selling at a similar discount? Get your checkbook, you’ve got a McMansion to buy.
But hold off a minute, says Ingo Winzer of real-estate consulting firm Local Market Monitor, which tracks and forecasts 330 metro areas around the country.
Just because a local housing market has sunk like a stone, doesn’t mean it can’t drop some more. And that’s exactly what many cities around the country are facing right now.
“Real estate cycles last for many years,” says Winzer. “Even though prices have been dropping for a couple of years in some markets, they could keep dropping for several years more.”
The culprit: A horrendous employment situation, which has already seen almost seven million jobs lost since the end of 2007. Even if the recession has technically bottomed out, people are still being laid off, and that will continue to be a drag on the housing market. Couple that with skittish lenders and the sheer number of distressed mortgages, and you have a toxic mix that still hasn’t been resolved.
“We’re definitely close to the bottom,” says Celia Chen, senior director of housing economics at Moody’s Economy.com, who points out that the Case-Shiller 20-city house-price index has finally been ticking up. “But we expect prices to start descending again by the end of this year. With so many foreclosures still in the pipeline, we don’t expect a bottom until the middle of next year.”
But not all is lost. All real estate is local, after all, and your hometown has its own unique prognosis. To make his forecasts at Local Market Monitor, Winzer compares income levels to housing prices, to determine which markets around the country are overvalued or undervalued. He then pairs that with local jobs outlook, to predict what’s in store for each community. His take on the best (and worst) housing bets for the next year:
Best Expected Performance:
In this group are many locales that never experienced the housing boom in the first place. Since they never climbed to unsustainable heights, they didn’t have a price cliff to fall off. Among this group are southern spots like Baton Rouge, La.; Columbia, S.C.; and Little Rock, Ark.