Boom, Bust, or Somewhere In Between: The Prospects For 30 U.S. Housing Markets

The real estate market is shifting.

You probably knew that, but the real question is, in what direction? Everyone seems to have an opinion, from your nosy neighbor to the so-called experts at huge financial firms. When it comes to job security, you can’t beat real estate expert. Except for NBA general manager, it’s hard to imagine a profession where you can be wrong so often and be considered good at what you do. But that’s a discussion for another time.

With all the conflicting information and endless speculation out there, the only concrete answer is that it depends on where you live. In order to make sense of it all, MSN Real Estate put together three lists of 10 cities per. The first is a list of places where housing values should continue to rise, while the second is a list of cities where things should level off. The final tally, as you might expect, is a rundown of markets which are likely to decline.

Together with Bankrate.com, these are the markets MSN feels are the most worth watching in the near future. Please note that they are not intended to be numerical rankings (otherwise California and Florida housing markets would dominate), nor should these be considered end-all, be-all lists. In a recent quarterly survey, the National Association of Realtors reported that 72 of 145 markets showed double-digit growth in terms of median prices for existing, single-family homes, while only six declined.

Not exactly doomsday. So take these lists for what they are — speculation.

GROUP #1: KEEP ON GROWIN’

Seattle, Wash./Portland, Ore. Despite the economic fallout from the tech boom’s collapse, the housing appreciation prospects for these two cities remain promising. Tight controls on development have kept builders at bay… and demand for available units high.

Boise, Idaho. Not only is it a fun name to say, but it’s often mentioned as a small, but strong real estate market. Forbes magazine ranked it first on its 2005 list of the best places for business and a career, while John Burns Real Estate Consulting listed it near the bottom of its list of markets headed for a potential housing collapse.

El Paso, Texas. It’s been clear for awhile that Texas real estate is a bargain. The Local Market Monitor believes El Paso leads the way in that respect, and that it may even be the most undervalued market in the nation.

Albuquerque, N.M. Another city at the bottom of most experts’ lists of cities susceptible to a housing bubble. It’s also high on the list of markets that should experience economic growth in the next two years.

Salt Lake City, Utah. Nothing drives housing like a stable economy and continuing job growth. Salt Lake has both.

Raleigh, N.C. This city is right in the middle of the East Coast, and has the benefit of attracting people from up North (seeking milder climates) and further South (fleeing Florida real estate prices). Look for its prices to continue their already steady rise.

Philadelphia, Pa. Unlike most northeastern cities, the City of Brotherly Love showed a modest 12 percent increase in appreciation from 2004-2005. In other words, reasonable. Not worthy of panic. Job growth is also steady.

Atlanta, Ga. Home to several major corporations and the country’s busiest airport, Atlanta also is the second-largest housing market in the nation. Housing prices have enjoyed steady appreciation without the skyrocketing increases that have pushed other large markets toward a bubble.

Little Rock, Ark. While not exactly on most people’s radar screens as a hot real estate market, Little Rock is one of the most undervalued markets in the country. At an average price of $155,900, housing there is running a good 17 percent below where it could be, making it a great value.

Birmingham, Ala. The NAR’s median price appreciation list showed Birmingham values increasing 4 percent last year, and poised for more of the same — especially as the high-priced Florida housing market makes people consider Alabama real estate more and more seriously.

GROUP #2: HOLDING TIGHT

Fort Myers/Cape Coral, Fla. We’ve talked a lot about the overvalued costs of the Southwest Florida housing market. With annual appreciation of 33 percent or more in 2005, this market may have finally topped out. Still, the always formidable demand to live full-time, or own second properties in Florida will keep a collapse at bay.

Washington, D.C. Home sellers in the metro area say it’s taking longer to sell than it did a year ago. Plus, builders are offering new incentives to facilitate sales. While Fortune thinks the market could see a slight decline by 2007, D.C. has a healthy economy and job market. Where there’s good business, there’s a demand for housing.

San Francisco, Calif. With median prices of nearly $720,000 at the end of 2005, the City By the Bay remains one of the most expensive places to live in the entire nation. Housing prices won’t decline because of short supply, but so many people are already priced out. They just can’t get higher.

Chicago, Ill. The Windy City isn’t as susceptible to a pricing bubble as some of the other major urban areas of the U.S., but the ratio of housing costs to income far exceeds that of other markets. Job growth remains at sluggish levels, too.

Honolulu, Hawaii. Honolulu is tough to compare to anywhere else because of its location. In 2003, the median price of an existing single-family home was $380,000, but by end of the 2005, it was estimated at $620,000. In the end, that just can’t continue — no matter how great Hawaii is.

Tucson, Ariz. The Arizona real estate landscape is dominated by Phoenix, but Tucson quietly saw an estimated 32 percent appreciation over the past 12 months. Which means current pricing is about one-fourth higher than it should be, according to analysts.

Denver, Colo. This market has caught the attention of national builders in recent years, but Denver’s rate of appreciation has been modest. The Local Market Monitor reports that it hasn’t been above 5 percent since 2001, and Fortune predicts that isn’t likely to change.

Detroit, Mich. The Motor City was one of only six major metro markets in the country to show a decline in housing appreciation last year, so you’d think it could bust out in 2006-2007. But large job loss rates and a high unemployment rate should keep things relatively stagnant.

Minneapolis, Minn. Experts are predicting that this area is not likely to surpass the rate of inflation with its real estate appreciation anytime soon.

Baltimore, Md. Like Washington, Baltimore has experienced strong double-digit growth in appreciation over the past few years. But several reports indicate the market is overpriced compared to its history, which is a good signal that prices are about to level off.

GROUP #3: BRACING FOR DECLINE

Naples, Fla. You knew it was coming. With 72 percent growth over the past two years, Naples real estate ranks as the second most overvalued market in the entire country. Even by Florida standards, it outpaces the rest of the Sunshine State by a good $100,000 margin. An abundance of more affordably priced options for first-time buyers within a short driving distance will mean the area holds steady at best, declines sharply at worst.

Miami/Fort Lauderdale, Fla. On the other side of the South Florida real estate landscape… we have the same dramatic price increases. The condo market, in particular, is what gives analysts pause. Because of the area’s pure popularity among investors and tourists (domestic and foreign), don’t expect a sharp correction. Just don’t bank on big gains anytime soon.

Las Vegas, Nev. What happens in Vegas stays in Vegas, with the possible exception of sky-high appreciation rates. Fortune lists Las Vegas as dead last among 100 metro markets for projected appreciation in the next two years, predicting a two-year combined decrease in values of 13 percent.

Sacramento, Calif. No one ever thinks of California’s capital city in these discussions, but the numbers all show it as ridiculously overpriced (59 percent) and poised for a dropoff.

Phoenix, Ariz. As they say, the bigger they are, the harder they fall. As the largest housing market in the country in terms of new construction, that leaves Phoenix on the verge of decreasing prices.

Boston, Mass. A year ago, homes would go on sale and be gone in a week. If you saw a good price, you put in the offer, sight unseen. That was 2005. How quickly things change in Boston, where homes are staying on the market for the better part of a year. Sellers are reluctant to drop prices, but may be looking at no other choice before too long.

Los Angeles, Calif. The City of Angels is often described as the poster child for how a lack of new housing near employment centers can hurt an economy. Affordable housing has been an issue for years, with median prices consuming 91 percent of the average citizen’s income.

Newark, N.J. As far as the real estate analysts are concerned, Newark gets an F on its local market grading scale, largely due to its loss of several thousand jobs and the highest housing-cost-to-income percentage in all of New Jersey. Experts predict no measurable housing growth, and possible declines, in the next year or so.

Long Island, N.Y. When Fortune goes as far as to predict a decline of 6 percent in housing values over the next two years, you know this have inflated beyond recognition in Nassau and Suffolk County.