When the headlines about the housing market are apocalyptic, the last thing a homeowner wants to do is sell. But a funny thing happened to Jeff and Jennifer Boyd when they put their three-bedroom house in Philadelphia's Graduate Hospital district on the market this summer: They turned a profit. Just 45 days after the listing went up, a buyer snapped up the property for $555,000 -- $29,000 more than the Boyds paid in 2006. "We were pretty hesitant, knowing what the market is like," says Jeff. "But a few weeks later, it was gone."
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Here's a surefire way to start an argument: Suggest that the housing market has reached bottom. To be sure, the near-term outlook is still grim, and nobody is forecasting a rapid nationwide rebound. But there are signs that the overbuilding and speculative pricing that inflated the bubble are working their way through the system. In October 2005, near the peak of the boom, the median sales price for a U.S. home reached 7.3 times per capita income; by this May it had fallen to 5.7, in line with historical norms. Nationally, the rate of decline in sales is slowing, and in some regions sales numbers have actually perked up. "The indicators are starting to look better," says Adam York, an economic analyst with Wachovia.
Why the disconnect? For starters, the national sales figures that get so much attention -- and remain depressing -- are brought down by boom-and-bust markets like Las Vegas, Miami and Phoenix. David Berson, chief economist with mortgage insurance firm The PMI Group, says that if hard-hit states like California, Arizona, Nevada and Florida are taken out of the statistical mix, the picture is much more promising. According to PMI's "risk index," which estimates the odds of prices falling in a given market, at least 65 percent of the nation's 386 metro areas have less than a 10 percent chance of seeing lower prices two years from now. What's more, the government's sweeping bailout of the financial sector could boost the housing market by making borrowing easier for buyers.
We dug into those numbers as well as other forecasts and analysis to determine which markets are in the best shape for a rebound? We also talked with housing experts to learn which kinds of neighborhoods and suburbs are thriving. Our search led us to 25 metropolitan areas that look particularly promising, and there are more than a few surprises. Here, we profile seven of the best-looking markets.
The Emerald City is that rare major metro area near the coast that is not on a nausea-inducing roller-coaster ride. While home prices in Florida and Southern California are in a free fall, homeowners here are experiencing a gentler landing. Of course, that's partly because the ride up was not as euphoric -- home prices here peaked at 65 percent above January 2003 levels, compared with more than 95 percent in Los Angeles. Thanks to well-paying mega-employers like Microsoft, Amazon.com and Boeing, unemployment remains under 4 percent. That, in turn, has kept median sales prices from falling far. Just as encouraging: Only 11.5 percent of local homeowners who bought within the past five years have negative equity on their property, well below the national average of 29 percent, according to the real estate services firm Zillow. That indicates there won't be a flood of foreclosures and short sales around the corner.
Among Seattle's neighborhoods and suburbs, yesteryear's star performers -- affluent areas like the Victorian-studded Queen Anne district or Redmond, home of Microsoft -- are beginning to slide back a bit. The most resilient part of the region lies across the Duwamish River from downtown, in West Seattle. The small community is directly accessible by only one bridge. That can lead to traffic snarls, but many residents simply bike 20 minutes to jobs downtown. On weekends the relative seclusion means the 2.5-mile Alki Beach promenade along Elliot Bay doesn't get too crowded. As long as people like great views of water, mountains and city skylines, "those homes will always maintain their value," says local broker Febe Cude. Dave and Alison Keith recently sold their two-bedroom townhome in West Seattle for $289,000, up more than 25 percent from their purchase price four years ago. They plowed that windfall into a home in the same neighborhood with twice the living space and a fenced-in yard, for $429,000. "You're always nervous, but I feel like things are holding up well here," Alison says.
The specter of a prior real estate bubble helped Iowa avoid the current bust. After an agricultural debt crisis in the 1980s, when many farmers found themselves owing much more than the value of their land, Iowa began an aggressive push to diversify its economy. Many of the resulting development subsidies have contributed to a thriving region around Des Moines, the capital. Major insurance and financial-services companies call Des Moines home, including the Principal Financial Group. The media company Meredith Corporation, publisher of Ladies' Home Journal and Better Homes and Gardens, also maintains its headquarters in the city. Young people flocking to jobs here from other parts of Iowa have helped keep housing demand steady. But homebuyers in these high-paying, white-collar jobs don't need to stretch much to afford the metro area's median home price of $156,600.
Though it's undergone a slight slowdown this year, Des Moines's real estate market never crashed, in part because it didn't experience much of a run-up. "Nobody here was flipping houses," says David Swenson, an economist with Iowa State University.
The suburb of West Des Moines is a particularly strong market, with only six to seven months of inventory, compared with 10 or 11 months in other parts of the metro area. Much of West Des Moines's housing stock is new construction, both condos and single-family homes, but some historic flavor remains in the Valley Junction neighborhood, a collection of antique shops and other retailers in storefronts dating from the late 19th century. Tom Bernau, 47, moved this spring with his wife and 2-year-old son into a new, five-bedroom home on the third fairway of a private golf course in the city. The couple moved to West Des Moines for its excellent public schools, but before their son starts kindergarten, he's keeping busy at the country club next door. "We can take our golf cart from our house and go to the pool without going on a city street," Bernau says.
North Carolina's capital seems to have gotten a free pass where the housing slump is concerned. Prices have been buoyed by job growth in the Research Triangle, home to dozens of tech firms. Total sales in the first quarter of this year were the fifth highest on record. In some cities, suburbanites stung by gas prices are moving downtown in favor of walkable neighborhoods. But not in Raleigh. "People move here to get away from that type of living," says local market analyst Stacey Anfindsen, only partly in jest. Although downtown Raleigh has added hundreds of condos and lofts, the real growth has come in suburbs like Cary, Morrisville and Apex, all on the western side of Raleigh, where home prices have risen steadily.
The subdivision of Preston, where prices are up 3.5 percent over last year, reigns as the area's übersuburb. The northwest Cary neighborhood was bankrolled in the 1990s by Jim Goodnight, founder of software giant SAS, and supersizes the standard suburban amenities: Most lots are at least a quarter-acre, double the size of newer developments, and prices approach $500,000. Parents can choose from a roster of lauded private and public schools. John Minicucci, a technology analyst, moved his family to Preston in May after stints in New York and Vancouver, B.C., and chose the neighborhood in part because it is already built out; it doesn't run the risk of being flooded with discounted properties because of overbuilding. "Since this area didn't really experience the boom, it won't be as susceptible to tanking," he says. And he's loving perks like abundant tee times. Like more than 60 percent of Preston residents, Minicucci belongs to the local country club, which hosts 54 holes of championship golf, two tennis facilities and three swimming pools.
Salt Lake City
Salt Lake City supports a diverse economy that could be called "Mormons and more." The Church of Jesus Christ of Latter-Day Saints remains a large employer here, but the area has also seen steady job gains in health care, education and natural resources. That diversity has offset tough times for local home builders and information technology companies, keeping job growth in positive territory -- and putting a safety net under home prices. "There's a very pro-business, prodevelopment atmosphere," says Jeff Thredgold, the economist for regional Zions Bank.
The city's downtown is a testament to that. The 40-square-block area buzzes with construction projects, many of them related to City Creek Center, a $1.5 billion development that will include retail stores, offices and condos. The downtown area is home to several of Salt Lake City's hottest residential neighborhoods, along with the Utah Jazz NBA team, outdoor concerts, theater and nightlife (though you may have to join a private club to be served alcohol). Of the seven zip codes in Salt Lake County that saw median prices rise in the second quarter of this year, three were downtown locales.
This fall, Kolaleh Rahimi, 40, moved with her daughter into a historic 1934 home in the Avenues, a popular neighborhood with an eclectic mix of Victorians, bungalows and ranch homes just north of downtown. Rahimi, a pharmacy manager, bikes five minutes downtown for shopping, music festivals and the Saturday farmers' market. "Whatever you can do in downtown New York these days, you can do in downtown Salt Lake," she says. But there's nothing New Yorkish about home prices: Three-bedroom houses in the Avenues sell for around $360,000.
Philadelphia bashers like to note how the city doesn't quite keep pace with its northeastern neighbors New York and Boston. When it comes to real estate, that may be a good thing. While prices in the Big Apple and Beantown soared during the bubble years from 2003 to 2006, the City of Brotherly Love charted slow and steady growth. Over the past year, Philadelphia prices have stayed stable, while New York and Boston suffered small declines. And only 7 percent of Philly-area homeowners sold for a loss in the past year, according to Zillow -- well below the national average of almost 24 percent.
The region did see some overbuilding, but employers such as pharmaceutical and other health care companies are drawing an influx of newcomers to the suburbs. That's especially true in Collegeville, a former bedroom community 30 minutes northwest of Philly's city center that is now home to operations of both Wyeth and GlaxoSmithKline, with mutual fund giant Vanguard just a few towns down the road. So named for the leafy campus of Ursinus College, Collegeville offers multi-acre horse farms and country estates for executive types, with more quaint accommodations in town for tweedy academics. Prudential Fox & Roach, a brokerage with about 4,000 agents in greater Philadelphia, says Collegeville prices are up 16 percent this year. "We are getting a lot of lowball offers, but we are negotiating them up," says realtor Megan Goldstein. Other Philly suburbs are benefiting from the more traditional migration of young families from the city center. The Boyds, the couple who sold their house in town at a profit, are using the proceeds to buy a four-bedroom, 3,000-square-foot home in a new development in Skippack, Pa.
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The University of Alabama at Birmingham anchors this city's economy, operating an 18,000-student campus and major medical center whose recessionproof demand has helped the local economy weather the current downturn. And even the manufacturing sector is relatively healthy here: About 40 miles outside Birmingham, two auto plants -- for Mercedes and Honda -- employ workers whose textile jobs moved offshore over the past couple of decades. The city's low labor and land costs attract businesses to locate here rather than in rival cities elsewhere in the region like Atlanta or Charlotte. Birmingham holds its own in the culture department as well: It boasts two restaurants with chefs nominated for James Beard Foundation Awards, in addition to the Alabama Symphony Orchestra, Opera Birmingham and the Birmingham Museum of Art, whose popular Art on the Rocks programs draw young professionals to sip cosmos amid the Cassatts.
The region's attractions have helped cushion the impact of the national housing slump. Median home prices in the area that encompasses Birmingham's Jefferson and three other counties have held up well. "We have avoided the peaks and the valleys," says Russell Cunningham, president of the Birmingham Regional Chamber of Commerce. The suburb of Mountain Brook has fared particularly well, with a median home price increase of just under 5 percent in the first half of this year. The affluent community's three villages, most of them laid out in the 1920s and '30s, form a leafy triangle in the Appalachian foothills. At $535,000, Mountain Brook's median home price for the first half of 2008 is well above the region's median of $163,500. And the area lies less than five miles from Birmingham's downtown business district, so residents are anything but cut off from the city's amenities.
Denver's overall outlook is sunnier than for most western cities because neither inventory nor prices spiraled out of control during the boom. Dinged by a telecom bust earlier in the decade that cost the city 5 percent of its jobs, the local economy wasn't primed for irrational exuberance. Now with six months' worth of homes in inventory -- the level most experts judge to be roughly in balance -- the city offers considerable upside.
In particular, upscale buyers are flocking to Cherry Creek, the tony neighborhood that's home to Neiman Marcus and the Cherry Creek Arts Festival, one of the country's top urban arts fairs. Here, prices leaped 16 percent in the past year, according to Integrated Asset Services, an firm specializing in mortgage investments. The area's popularity illustrates a common theme in U.S. housing markets: established, close-in neighborhoods are often holding up better than suburbs, because they didn't endure overbuilding and because higher-income owners were less likely to need subprime or adjustable-rate mortgages.
Cherry Creek's success also highlights the strength of the envy factor. In a recent Coldwell Banker survey of luxury homeowners, 17 percent said they've considered moving to get into a certain address or zip code -- a reminder that the lure of prestige or good schools moves homes even in a shaky economy. Cherry Creek's 80206 zip code may be Denver's ritziest -- as seen in the new development NorthCreek, which features a mix of million-dollar tower condos and brownstones along with a private garden courtyard, à la New York's Gramercy Park.