How bad is it? "There's not a market that's immune at this point," says Chris Porter, manager with John Burns Real Estate Consulting.

For a look at 30 top markets, Bankrate sought forecasts from those who follow trends in home sales and prices, as well as factors such as foreclosures and job growth.

All agree that existing home sales and housing starts will continue to decline in 2008. But opinions differ on when improvement in resales and new home sales will occur. (View the slide show of the top 30 cities)

Panel of experts
• Ken Fears, National Association of Realtors.

• Bernard Markstein, senior economist and director of forecasting, National Association of Home Builders.

• David Stiff, chief economist, Fiserv Lending Solutions.

• Chris Porter, manager, John Burns Real Estate Consulting.

• Ingo Winzer, president, Local Market Monitor.

Ups and downs
Stiff's United States forecast shows prices hitting bottom in the middle of 2009.

"Some prices don't start to bottom out until early 2010," he says. But in key markets where the rate of appreciation accelerated faster than household income growth — such as many cities in California and Florida, as well as Phoenix, Las Vegas and Washington, D.C. — he expects prices to drop by 20% or more.

What's your home worth?

Nationally, Fiserv projects a 13.1% decline in home prices from the third quarter of 2007 to the third quarter of 2008, with the numbers continuing to decrease the following year — by 2.8% from the third quarter of 2008 to the third quarter of 2009. The NAR forecasts that existing home sales will remain weak for all of 2008, with the worst happening in the middle, and improving slightly toward the end of the year, Fears says.

For all of 2008, existing-home sales are likely to total 5.39 million, and then rise 6.1 percent to 5.72 million next year, according to the latest NAR data.

"New home sales will be off sharply," Fears says. "That's good; that's not a bad thing for the market because all it does is reduce supply."

Housing starts are expected to hit bottom likely in the middle of the year, Markstein says. "We're the optimists," he adds.

The NAHB is forecasting a little more than 1 million housing starts — 719,000 single-family, 284,000 multifamily — this year. Last year, there were roughly 1.15 million starts, according to preliminary fourth-quarter data, compared with about 2.1 million during the peak in 2005, Markstein says.

Lower-priced homes are a prominent group under construction. They could be less than $150,000 in some markets or less than $350,000 in more expensive areas such as Washington, D.C., he says. Even with improvements in formerly hot markets, such as California, South Florida, Phoenix and Washington, D.C., they'll be the slowest to recover because of the supply.

"It's still going to be painful," Markstein says.

As for prices, despite widespread talk of declines, about half of the 150 metropolitan statistical areas actually witnessed rising home prices in the fourth quarter of 2007, according to the NAR. It expects existing home prices to decline 1.2% in 2008, reaching a median of $216,300. In 2009, the group expects median home prices to rise 3.2% to $223,200. John Burns Real Estate Consulting estimates that resale transactions will drop to about 3.8 million, compared with 4.9 million last year.

Home affordability calculator

"We do think that sale volumes are going to be sort of the first to stabilize," Porter says. "Then (we'll) see stabilization in listings, followed by stabilized prices."

The number of new home sales is likely to decline 17.7% to 637,000 in 2008 before rising 7.6% to 685,000 in 2009, according to the NAR. The median new home price is expected to fall 4.3% to $236,300 in 2008, and then increase 5% in 2009.

Financial factors
The subprime crisis that set the industry back last year will continue to push progress back in 2008, says Porter. Fiserv's Stiff agrees that forecasts are more pessimistic than expected because things deteriorated so badly in the fourth quarter.

"We keep pushing out the point where prices hit the bottom because I think everybody underestimated how severe the mortgage crisis would be," he says. "Even if you wanted to buy, you either couldn't get financing or had to pay a much higher interest rate than in the past."

Compounding the problem are foreclosures, which rose 75%, to a record 2.2 million foreclosure filings on nearly 1.3 million properties in 2007, according to Irvine, Calif.-based RealtyTrac. Eighty-six metropolitan areas reported increases from 2006, and the top 20 metro cities with the highest foreclosure rates were predominantly in California, Ohio, Florida and Michigan.

Porter says fourth-quarter 2007 data show that sellers are finally starting to come down and accept lower offers.

"They realize in order to sell their home, they have to give in a little bit on prices," he says.

But prices are not likely to bottom out in the resale market until 2010.

"(Sellers are) not willing to give up a lot of equity they think they have accumulated in their home over the last several years," Porter says.

Ingo Winzer, president of Massachusetts-based Local Market Monitor, agrees that in some markets, prices will fall for years to reach equilibrium.

"I think that we are in for several years of not necessarily a bad real-estate market, but let's say a much quieter market than we've had the last five years or so," he says.

Winzer's data compare actual home prices in the market with an index using factors such as local income to determine if a market is overpriced or undervalued.

"There's not going to be a quick snapback of demand and snapback in volume, and particularly there's not going to be the same kind of growth in prices that we've seen in so many markets in the last five years or so," he says. "I also believe there is a moderate chance that we're actually in a recession right now, and a recession that's driven by the fact that consumers don't have any money left."

As a result, Winzer says, folks will be spending less in the next few years, partly out of caution, because of the lack of credit, and partly because they think they don't have the financial assets, in terms of home value, behind them.

"It will keep a number of people out of the housing market and price increases relatively low, and it's going to last for a while," he says. Those double-digit increases won't happen again for another five to 10 years, depending on population growth, Winzer says.

Aiding that will be financing initiatives, including the decision by Congress in the economic stimulus package to increase maximum amounts of conforming loans in some markets. The association forecasts that higher loan limits will result in a rise in home sales and prices.

Also, the NAR says it expects 30-year fixed-rate mortgages to average 6.3% in 2009.

Another factor will be a rebound in the Federal Housing Administration market, which Fears says is more affected by helping borrowers stay in good standing, compared to subprime loans.

FHA rates also are about 3 percentage points less than those in the subprime market, which is an "incredible improvement in affordability," Fears says.

Understanding Bankrate's averages

Note: The affordability ratings are part of John Burns' Housing Cycle Barometer, which calculates the ratio between housing costs for the median-priced existing home and income levels. They analyze 26-plus years of history in each metropolitan area, and compare the current ratios to the median ratios in each area. The down payment and mortgage payments are appropriately weighted based on total expenditures over the life of a typical home purchase. This methodology accurately determines which markets are overpriced and underpriced, even in an environment with historically low mortgage rates. The barometer ranges from 0 to 10, and is generally categorized as follows:

  • Significantly overpriced in comparison to history: 7.6 to 10.0
  • Overpriced in comparison to history: 5.0 to 7.5
  • Underpriced in comparison to history: 0.0 to 4.9

By Lori Johnston, Bankrate.com