5 Worst Housing Markets for 2013

TheStreet.com

BOSTON (TheStreet) -- The U.S. housing sector has apparently turned a corner -- but some big cities shouldn't expect much of a price rebound this year, a 2013 forecast from market tracker Zillow Z says.

"Housing markets have different performances from each other because the fundamental drivers of home prices vary from market to market," Zillow Chief Economist Stan Humphries says. "Phoenix looks quite different from Detroit."

Zillow, a popular website that estimates property values for virtually every home in America, predicts median U.S. prices will rise 3.3% this year after bottoming out in 2011. (The site estimates median values rose 5.9% in 2012.)

Zillow, though, also expects 19 major metro areas -- from Boston in the Northeast to Las Vegas in the Southwest -- to see either price declines or below-average increases this year.

Ironically, Humphries says many cities Zillow predicts will see substandard gains can blame the fact that their markets didn't fall as much during the housing bust as others did -- leaving less room for rebounds.

"These were not the nation's hardest-hit markets," the expert says.

But Humphries also attributes many cities' below-average forecasts to the fact that they're in "judicial-foreclosure" states, where banks must go through lengthy court proceedings to seize homes.

He says that puts a damper on price gains because buyers in such locales know there's a backlog of distressed properties that will eventually hit the market.

"People are very likely to either be in distress themselves or know someone who is, and that colors their perception of the market," Humphries says.

Here's a look at the five cities Zillow predicts will have the worst price appreciation this year among America's 30 largest metro areas (excluding Houston, which doesn't make enough property information public to allow for analysis).

Zillow compiled its forecasts by looking at local market conditions, job growth and other factors. (Click here for a look at the site's predictions for 2013's five best markets.)

Forecasts refer to median property-value gains for all houses and condos in a given market, whether they're put up for sale in 2013 or not. Estimates of current median values are as Dec. 31, the latest date with figures available.

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No. 5 worst market: New York City
Projected price change: 0.5%

Big Apple homeowners should expect only small price gains in 2013.

Humphries says that's partly because Gotham had a relatively mild housing downturn in recent years, with median prices falling 15.6% peak-to-trough vs. 23.4% for America as a whole.

He also says the New York Metropolitan Statistical Area -- which officially runs as far south as the Jersey Shore -- includes struggling locales such as Newark, N.J.

"It's an extremely mixed market," Humphries says. "Manhattan is doing fantastic, but there are places in New Jersey that have not done very well."

Add in the fact that New York and New Jersey are judicial-foreclosure states and attract few retirees or second-home buyers and you get a market that Zillow expects will see paltry 2013 gains.

The site predicts median New York-area home values will rise only about $1,600 this year from $345,700 as of Dec. 31

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No. 4 worst market: Cincinnati
Projected price change: 0.4%

This is the only big U.S. city where Zillow believes home prices have yet to bottom out.

Even though Cincinnati's median property values are down 14.9% from a 2008 peak, the site predicts prices there will keep falling until mid-2013, then rebound a bit late in the year. All told, Zillow expects the Queen City's median home price to inch up just $533, to $122,433, by 2013's end.

Humphries attributes Cincinnati's lackluster prospects primarily to a lack of buyer interest among "the demand drivers we see in cities that are performing the best right now -- retirees, second-home purchasers and foreign investors."

The fact that Ohio is a judicial-foreclosure state also puts a lid on the city's outlook, he says.

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No. 3 worst market: St. Louis
Projected price change: 0.09%

St. Louis' famous arch is a good metaphor for how the housing market there has performed in recent years.

Median home values shot up during the housing boom to $153,700 in February 2007, but tumbled nearly 19% over the next five years.

Prices are still down 17.9% from their peak, but Zillow expects they'll rise only $116 in 2013 to finish the year at a median $126,316.

Humphries says that like Cincinnati, St. Louis suffers from a lack of demand among today's three key buying groups -- retirees, second-home buyers and foreign purchasers.

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No. 2 worst market: Charlotte, N.C.
Projected price change: 0.08%

North Carolina's most populous city will see little home-price appreciation this year because prices there never fell that much.

Median home values dropped 15.3% during the bust -- far less than the 23.4% declines seen nationwide.

"Affordability has not reset that much in Charlotte," Humphries says.

As a result, Zillow predicts Charlotte's median home values will add only $114 this year, ending 2013 at $137,114.

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No. 1 worst market: Chicago
Projected price change: 0.6% decline

The Windy City's housing market looks likely to take some fresh blows in 2013 -- in fact, it's the only major city where Zillow expects median home prices to fall.

"Chicago is a market that hasn't been doing great for quite a long time," Humphries says. "It's been a long housing recession there."

Although Zillow believes Chicago's median home values bottomed out a year ago and rebounded during most of 2012, the site expects prices to fall again in 2013 -- albeit not by much. Zillow forecasts the Windy City will see median values drop $941 to wrap up the year at $160,659.

Humphries attributes Chicago's negative outlook primarily to weak demand amid a glut of supply.

He says that because the metro area's home values peaked in January 2007 -- 12 to 18 months later than many U.S. cities -- local developers kept building condos well into 2006. "But then the recession set in and buyers for that new supply never materialized," Humphries says.

The economist adds that Illinois' status as a judicial-foreclosure state only increases the Chicago market's headwinds.

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