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| The Basics | The 7 most vulnerable real estate markets
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In some formerly white-hot areas, price appreciation has slowed and homes take longer to sell. How is your city doing? Here's how to tell.
By Liz Pulliam Weston
After years of posting breathtaking price increases, several of the nations biggest home markets are in trouble.
Double-digit annual gains have stalled out. Homes are sitting on the market longer. Prices in some areas and on some homes actually are falling.
This doesnt mean a full-on real estate recession is in the offing. But if you own a home in one of these markets, or plan to buy one soon, pay attention to these trends.
Nationwide, home price appreciation has moderated significantly, in the words of the Office of Federal Housing Enterprise Oversight, the government agency that tracks home cost trends. Its conclusions are based on data from Freddie Mac and Fannie Mae, the nations two biggest sources of mortgage capital.
House prices are still going up, but at a 5.61% annual clip -- down significantly from the 7.3% annual pace of three years ago.
Some markets are still strong
Some areas, of course, are still going great guns: Fresno, Calif., topped the agency's list of fastest-rising home prices in the third quarter with 16.05% annual appreciation. A number of other markets from Miami to Providence, R.I., to Santa Barbara, Calif., saw prices jump more than 10%.
In other areas, though, growth has slowed dramatically. Some cities that used to be white-hot now lag the national average. Using the federal housing agency's figures, I identified seven markets showing serious signs of weakness, and three more to keep an eye on. Prices in these areas have either dropped or stalled after years of posting bigger-than-average gains.
Wondering where your city ranks?
Here are the details on all 220 areas and some ideas on how you can get a feel for the local trends.
Akron thru Los Angeles | Louisville thru Youngstown
There's no certainty, however, that prices in these areas will crater. Id hate to see anyone put off a home purchase betting that costs will be lower in the future. These markets could simply be taking a breather, and prices very well may rise, particularly as local economies pick up. Strong job growth tends to encourage people to move into an area, which, in turn, boosts demand for homes and thus home prices.
What you do want to do is make sure you can stay put for at least three to five years. Thats good advice in any market, but particularly in one where slow growth may make recouping your buying and selling costs difficult. Making a substantial down payment to provide a big pad of home equity is also a good idea, in case you have to sell when prices are down.
With that in mind, here are the markets that worry me
| Home price changes in the 7 most troubled markets | | Metropolitan area | 1-Qtr. | 1-Yr. | 5-Yr. | | Austin-San Marcos, Texas | -0.71% | -0.31% | 35.50% | | San Jose, Calif. | 0.04 | 0.43 | 56.54 | | Denver, Colo. | 0.08 | 1.35 | 48.06 | | Boulder-Longmont, Colo. | 0.25 | 1.07 | 48.48 | | Fort Collins-Loveland, Colo. | 0.41 | 1.73 | 39.59 | | San Francisco, Calif. | 0.53 | 2.79 | 65.45 | | Santa Cruz-Watsonville, Calif. | 0.85 | 3.48 | 72.53 | | National | 1.39% | 5.61% | 38.20% |
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Source: Office of Federal Housing Enterprise Oversight
Heres whats going on in each market:
Austin-San Marcos, Texas The recession came late to Texas capital area but hit hard once it arrived. Layoffs at Dell Computer and other high-tech concerns led to unemployment levels not seen since the late 1980s and drops in real per-capita income. As people started leaving the area, home prices stalled and then began to drop -- making it the only metropolitan area in the country with lower median prices today than a year ago.
San Jose-San Francisco-Santa Cruz-Watsonville, Calif. Speaking of high-tech flameouts, Silicon Valleys troubles helped push all three of these metropolitan areas from the top to the bottom of the home price appreciation scale.
Three years ago, San Jose was quite literally at the peak, posting the fastest-growing home prices in the nation with real estate appreciating at a 25% annual clip. Today, its annual growth rate ranks 219th of the 220 metropolitan areas the federal housing agency tracks. (Austin is dead last.) While bidding wars still can break out for more moderately priced houses, some of the areas most expensive homes (in the $5 million and up category) have lost up to half of their value, real estate agents say.
San Francisco and Santa Cruz for awhile defied gravity but have since seen their markets lose some luster -- again, with the highest-priced homes taking the most heat.
Denver-Boulder-Longmont-Fort Collins-Loveland, Colo. Talk about taking it in the teeth. After robust growth during the nations boom, Colorados fortunes turned during the recession and have yet to recover. Unemployment spiked, office vacancies climbed, migration to the state slowed. Denver, in particular, has a big supply of unsold homes, and new housing permits recently hit a 10-year low. Economists predict the state will continue to lag the nations economic rebound.
Is New York just taking a breather?
Three other markets lost ground during the third quarter:
| 3 markets looking weaker | | Market | 3rd quarter | 1-year change | 5-year change | | New York, N.Y. | -0.44 | 6.21 | 63.21 | | Augusta, Ga.-Aiken, S.C. | -0.34 | 2.73 | 18.35 | | Lafayette, La. | -0.01 | 4.28 | 18.75 |
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Source: Office of Federal Housing Enterprise Oversight
Of course, one quarter of falling prices does not a real estate recession make. Particularly in New York City, where growth in the past year still tops the national average, it would be tough to make the argument that the real-estate party is over. The third-quarter drop may be a harbinger of things to come, or it may just be the Big Apples brief rest stop on the way to ever-higher prices. The citys improving economy and growing profits in the financial industry support the latter theory, but the situation is worth monitoring.
At the other end of the scale, you have Augusta, Ga., and Lafayette, La. No one could call these markets overheated: Both have five-year growth rates that are less than half the national average. Still, any step back in home prices is a reason to be concerned.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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