America's top 5 best – and worst – housing markets
In a moribund housing market, success means bleeding less than others. The latest S&P/Case-Shiller 20-city home price index shows a record 18.5% drop from the previous year. Is your city in the pits or relatively stable?
New York placed No. 1 in Forbes.com's rankings of the best housing markets in America. (© Shutterstock)
Wishing you'd left the game earlier is a time-honored Las Vegas tradition. Today, that's true not only for gamblers but for homeowners there. The last time Las Vegas properties were worth more than the average mortgage? August 2003.
Blame overbuilding and risky loans, a gambling mentality or even the desert sun, but based on today's results from the S&P/Case-Shiller home price index, which measures metro home prices in 20 cities through December 2008, Las Vegas is the weakest market in the country. Prices are dropping quickly (down 4.81% since last month and 33% in the last year); the pace of decline is accelerating at the third-fastest rate in the nation; and based on lost equity, homeowners are out 65 months of mortgage payments.
All signals that things aren't likely getting better any time soon.
"Vegas is a market unto its own," says Steve Cesinger, chief financial officer at Dewberry Capital, an Atlanta-based real-estate investment firm. "I don't know what those guys were drinking when they thought all this building made sense. If it does work out soon, then there's some force out there in the universe that I'm not aware of."
The S&P/Case-Shiller home price index, released monthly, examines repeat home sales in 20 metro markets, including the city core and surrounding suburbs. This means that while prices in the tony San Francisco neighborhood of Pacific Heights might be holding up, the net effect of including a bankrupt suburb like Vallejo brings down the metro area's score. Each city's score is assigned based on the price difference from 2000, which is scored as 100. So San Francisco's score of 130.12 means prices are up 30.12% from 2000. It still has the potential for a further fall, given the 31% year-over-year drop.
Forbes also analyzed monthly declines and year-over-year declines in home prices to determine where prices were falling fastest and where those drops were picking up momentum. It's not a good thing for San Diego that prices from November 2008 to December 2008 fell 2.13%, but as prices declined by 2.29%from October to November, and 2.44% from September to October, the speed with which prices are falling is slowing.
That slowing rate of decline — also seen in places such as Denver, Washington, D.C. and Boston — helped rank those cities as some of the stronger markets in the country.
Contrast that with Minneapolis, where prices fell just 0.96% from September to October, but by December, the rate of month-to-month declines had jumped to 4.6%, an unwelcome acceleration.
Next, to rule out places in complete depression, we looked at how many months of equity homeowners have lost. Places like Detroit (-2.98%) and Cleveland (-2.07%) haven't declined as quickly over the last month as Seattle (-3.63%) or Charlotte, N.C. (-2.55%), but that's because prices in those two Rust Belt cities are so depressed it's difficult for them to fall any further. Detroit and Cleveland homeowners have lost 141 and 92 months of equity, respectively, whereas Seattle and Charlotte prices have declined only for the last 39 and 33 months, respectively.
One other factor to consider with the Case-Shiller numbers is that the index tracks repeat home sales. That means cities like Tampa and Miami — which are notorious for overbuilt new inventory and high numbers of foreclosures — perform better on the index than they ought to, as those two factors are not tracked.
"Case-Shiller doesn't take into account new construction or foreclosure sales," says Jonathan Miller, president of Miller Samuel, a Manhattan residential appraisal firm. "In some of these markets, I'm not sure how you can ignore new construction or foreclosures."
Another city with foreclosure and new construction problems is Phoenix, where bad loans have mounted and mortgage delinquencies, a forebear of foreclosures, have risen.
"It's pretty gruesome," says Anthony Sanders, a finance professor at Arizona State University. He points to delinquencies as a major problem and a sign that the Valley of the Sun won't be bouncing back any time soon. In Phoenix, seriously delinquent loans — those that haven't been paid in 90 days — have increased from 3.5% to 27.3% for subprime loans since this time in 2005. Adjustable-rate mortgages that are seriously delinquent have gone from less than 1% to 20.2% in the same period.
With those problems looming on the horizon in many cities across the country, President Barack Obama might need more ammunition than his proposed $75 billion foreclosure prevention package offers.
Then again, even in a boom-bust capital like Los Angeles, if you bought in 2000, paid your mortgage on time and are still in your home, you've seen a 71.5% price appreciation. There's something to be said for that kind of responsible, long-term investor.
5 best housing markets
1. New York
5. San Diego
5 worst housing markets
1. Las Vegas
Click here to see Forbes.com's full slide show of the 10 best and 10 worst U.S. housing markets.
By Matt Woolsey, Forbes.com
We are all paying the price ,not only those who bought a house they couldn't afford. In 2006, I bought only a small, new townhome because that's all I could afford, rather than a house. I took out a 30 year fixed mortgage and I'm getting ripped off with high interest , principal & property taxes. Not to mention, I had an excellent credit rating. Now, I have no equity and own much more than my home is worth. I pay my bills on time, only to live among renters, foreclosures and a crime ridden neighborhood. However, those that couldn't afford to buy a home in 2006 are now able to afford a much bigger house at a much lower rate. This is at the expense of others. I'M STUCK because I cannot sell or refinance. WE ALL GOT HURT with the inflated housing bubble & greed of corporate America. Even those of us who pay our bills on time and didn't bite off more than we can chew. Working Americans are paying a very big price!
Honestly, I don't feel sorry for those who purchase homes they knew they couldn't afford or would have problems paying the note in the future. As people get older they are suppose to get wiser. Perhaps the goverment and the justice system should go after those shady companies and people who had involvement in bad loan practices including the buyer and appraiser and charge them with white collar crime.
I just recently heard a news report that Bernie Madoff (who "made off" with billions of other people's money) wants to keep his $7 million dollar home, as well as $60+ million in other assets. Is this man gearing up for an insanity defense? Why should this Wall St. wonder, who caused suicides and hurt charities, etc. get to keep his home, etc.? I think his next home should be jail. All of his assets should be liquidated to pay restitution to those he hurt. A forensic accountant might be able to uncover where his assets are hidden. I had a nephew who wrote a few bad checks in college because he was so broke. Of course, he got into trouble and had to make restitution for what he took and he went to jail and had to do community service and it was a matter of a few hundred bucks involved. Why shouldn't Bernie Madoff get the same deal my nephew got? I also watched a show where two Wall St. wonderboys were interviewed and asked whether they did anything wrong which helped push us into this financial crisis. One was very arrogant and said no, he was just doing what he was supposed to do and the other one admitted he had done wrong and was pretty emotional about the part he played. Unfortunately, I think we had too many of the arrogant types whose only concern was the bottom line, especially after I see what Madoff did and others who bilked others out of their savings. Bernie Madoff should NOT get to keep his home and his assets - that would be rewarding him for what he did. He needs a long stint in the big house.
The national average price for a home in the US will drop below $100,000. If this happens quickly, it will be less painful, but it will happen. If we expect any kind of sustainable recovery. Average home prices will stay at this level with very modest gains over a long period of time. There are some simple mathematic realities that both the current and several previous administrations have overlooked.
For every $100,000 borrowed the purchaser will pay $300,000 over a 30yr period (this is based on a reasonable interest rate). So during the bubble when average homes were selling at $400,000, the buyers would have paid $1.2 million for their home. What's the chance of selling an average home in the United States 30 years from now for $1.2 million?? About as likely as a tulip bulb selling for $5000. Believe it or not back in the 1800s in Holland a tulip bulb sold for $5000. Any takers now??
What happened to our Real Estate Market was pure speculation. People forgot that what goes up must come down.
I work in construction (I am an estimator) and watched the price of component building materials, during the SPECULATION, raise between 100% to over 300% at the peak of construction demand. For 15 years I priced rebar at $0.25/lb, before it was done I paid up to $0.75 per pound, and rebar is just one example, look at copper, plastic pipe, concrete, all saw price increases that exceeded 100%. What this means, is that every large capital asset (homes, commercial, retail, industrial buildings etc) cost up to 300% more than is realistically viable. Did everyone in the country see their incomes increase by over 300%?
My strong advice to those who are in homes they cant afford, give them back to the silly institutions that lent the huge sums. The federal government needs to stop giving incompetent or corrupt financial institutions our tax dollars. Cover the FDIC insured accounts, and let the so called experts, who got us here find new vocations. Why should a Citi Bank, or AIG, or GM executives be allowed to keep their salaries? Are you kidding.
How about a little justice for the American People, lets dust off the old treason law and put it to good work. Starting with the financial leaders who have committed economic treason against my country. While we are at it lets look at the Senators and Representatives who accepted campaign funding from AIG, Fannie Mae, and Freddie Mac, and due to greed, contempt, and or incompetence pushed for de-regulation.
IF YOU WANT TO KICK START OUR ECONOMY: Create American JOBS and OPPORTUNITY.
Give americans 100% tax credits for the purchase of american manufactured products that create efficiency or sustainability. Make the credit retro for the year 2008. Instead of Uncle Sam deciding which green technology will get all your taxes, we the people decide. The free market will naturally select for survival the companies that provide the best efficiency products.
All the current attempts to stop or slow the the downturn will only delay the inevitable.
All of these have to be rigged. I have family and friends throughout the country, we have discussed the market and declining values. We are all general contractors so we have had to pay a lot more attention than someone who only owns one home. Seattle and Las Vegas are picking back up steadily right now. And New York, NY is dragging way down along with LA. If you are going to release a study please make sure everything is included along with new construction and foreclosure sales.
Ok. this may be a little off topic.. but i will put this into discussion anyway...
If our government can print Billions and Trillions of dollars within the next month or two, why not help the the peoples in serious Mortgage.?. i mean this will only make our economy worse if we don't help now!.. OUR ECONOMY IS SLIDING! if we don't step up now.. this will only create more homeless!.. Yes, this may create many other problems.. but, sometimes.. ( especially in VEGAS ) you have to take your chances!
The odds may NOT be high.. but what do we have too lose.. i mean walking into a CASINO with zero and walking out again ,with zero is just the same as NOT coming' in at all.!!
Any idea why Anchorage Alaska is not in here as no #1?
The market gained in 07 and was less than a .11 drop in 2009.
300,000 people not enough to be called a city?
Tune into the best Real Estate show in the country "Alaska Real Estate Today' With Michael Schwartz, every Saturday on 700 KBYR am radio or streaming www.kbyr.com 4pm alaska time, 5pm Seattle time and listen in on real info.