Where home prices may actually ... rise?

The prognosis isn't as bad elsewhere.

Centex, one of Texas' largest homebuilders, has been stung by overextension into Michigan and Colorado, as well as big bets on the vacation-home market in Texas. In July, the builder reported losses of $150 million. There's a bright spot, however.

San Antonio and Austin, Texas, have largely avoided the real estate crash, with price increases of 2.5 percent and 4.1 percent in year-over-year terms, respectively, according to the NAR. This is driven in part by the fact that the two markets are expecting building slowdowns of 24.7 percent and 28.2 percent, respectively, through the end of the year, as home builders are bearish about the remainder of 2008 and 2009 in the sales market or cannot find financing. Builders as a whole are taping their wounds and cutting back production, adopting a wait-and-see approach to home prices in the coming year.

But for the start of 2010 and into 2011, builders expect a more vibrant market for sellers. For homes built in 2009, which would come off the conveyor belt in 2010 and 2011, the NAHB forecasts a 9.6 percent increase in Austin and a 20.9 percent increase in San Antonio above 2008 levels. Much of that has to do with expected job growth in all non-farm sectors.

More from Forbes.com Click links below for slide shows Most affordable U.S. places to retire America’ most distressed housing markets Most expensive state for home insurance World’s most expensive home sales America’s best places to earn a living

At this point, it's clear the subprime contagion won't be contained in the next year, based on the acceleration of home price drops and foreclosures nationwide. But when the bad vintages of loans finally come off the books, the cities where prices are expected to rebound are largely those with vibrant economies.

"The logic is pretty straightforward," says Mark Zandi, chief economist at Moody's Economy.com. "People will spend as much on housing as their income will allow them. House prices are very closely tied to household income over the long run when you look at business cycles."

This means that recovery is likely in the cards for even the hardest-hit spots. Cities like Atlanta and Colorado Springs, Colo., may be reeling from high defaults and foreclosures, but from 2007 through 2012, their economies are expected to experience 2 percent and 1.6 percent average annual job growth. That means more in-migration and more money in the economy, factors that help businesses grow and profit — and put more money in residents' pockets.

As local economies grow bigger and more dynamic, land values increase because the value of what can be produced on that land increases. When land prices go up, home values go up.

Home prices moving up; it sort of makes one nostalgic.

Also in msnbc.com business Your Career: Married to the job, and each other Answer Desk: Qualifying for more jobless benefits Venza sorta-crossover is Toyota’s latest mistake ConsumerMan: Chinese drywall remains a big threat   Video: Nervous retailers begin Christmas countdown

MORE FROM FORBES

Forbes Section Front

The key to dealing with lousy boss: negotiation IRS rules for medical deductions are sickening Tailgate much? These are the rides you need What automakers have in store for 2010 Top-earning dead celebrity? Not Jackson Need to fire someone? Here’s what to do America’s highest-paid female CEOS Cars with the worst fuel economy Economy is spooking Halloween shoppers The most expensive cities in America Forbes Section Front