America’s best and worst housing markets

“In the highest growth markets, there were a lot of folks who panicked when they saw prices going up by 8, 10 or 12 percent a year and rushed to buy in,” says Kermit Baker, a senior research fellow at Harvard University’s Joint Center for Housing Studies.

“Once prices started to fall [in high growth markets], speculators got an itchy trigger finger because prices went up so high that it was very difficult to buy; affordability had gotten out of hand and people worried that if they waited six to eight months to sell, they’d be left holding the bag. The result is a short-term adjustment.”

Steadier, more tempered growth translates into a stable real estate conditions because affordability remains in line with local economic conditions.

“In markets with sharp transitions, there was a lot of speculative, short-run buying” says Lawrence Yun, a senior economist with the National Association of Realtors. “In places like Texas or North Carolina, home prices are affordable and there is a good job creating the environment. In Seattle, the job market is strong and while home prices are above the national average, they are affordable by West Coast standards.”

What’s more, when home values grow too quickly, builders rush to keep up and when the party is over, construction slows and there is excess inventory. For example, this week the nation’s largest home builder, D.R. Horton, reported a 60 percent quarterly drop in earnings.

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Add to the mix speculators anxious to dump property and the result is a jump in residential vacancy rates. Since the end of 2005, when the housing bubble began to pop, nationwide vacancy rates have jumped to 2.5 percent, a nearly 50 percent increase from the 10-year average. Higher vacancy rates give buyers leverage in negotiating price because sellers have excess supply.

Despite the numbers, some in sluggish areas remain hopeful.

In cities such as Boston, where median sales prices were beaten down 4.3 percent from the 2005 peak of $431,000, realtors say the market is still strong.

“The biggest difference from 2004 and 2005 is that sellers are willing to negotiate on their prices — bidding wars aren’t taking place,” says David Green, a broker at Otis & Ahearn. “The bottom line is, if you price your home right, it will move; you would not see that happening in a downward market.”

Economists are similarly optimistic for the coming year.

“There’s no urgency right now because people think that if they wait six months, they can get a cheaper price,” says Baker. “When they think the market has bottomed out, they’ll buy back in.”

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