Where real estate seems to be hitting bottom

By Francesca Levy

updated 12:39 p.m. ET Sept. 27, 2009

There's more to indicate that the housing recession has hit bottom than Thursday's dual announcements that housing starts rose 1.5 percent from July, and new jobless claims dropped by 12,000 last week.

Homeowners looking to sell are also putting the brakes on the trend of aggressive price cuts, indicating that the real estate market may be closer to salvation than previously thought. In 20 major U.S. housing markets, the percentage of homes that have suffered price reductions is dropping.

Thirty-nine percent of for-sale homes in 20 major U.S. metros have had their prices reduced. That's a drop of six percentage points, from 45 percent at the beginning of the year, according to data provided to Forbes by Altos Research. That the number of for-sale homes with startling cuts has dropped is a sign that the real estate market may soon reverse its downward slide.

"The percent of homes on the market with price reductions is a really insightful indicator of organic levels of demand," says Michael Simonsen, chief executive of Altos Research. "As this number is dropping, there's improving demand at current prices."

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Real estate agents and homebuyers have gotten used to a market cluttered with homes whose price expectations have tumbled back down to earth. Currently, a $1.3 million 1950s home in central Washington, D.C., has 42.2 percent shaved off its original asking price. A designer mansion in Los Angeles may seem exorbitantly priced at $16.9 million, but that's 32.4 percent less costly than it was eight months ago. And a modest but presentable Vegas two-bedroom is going for a song at $65,000 —55.8 percent less than its original quote.

Believe it or not, this is all good news. While shrunken quotes like these crop up far more frequently now than they did two years ago, these are only a few standouts in major metro areas that, by and large, are starting to see a reversal of the price-slashing trend.

Behind the numbers
To find out where home prices are showing signs of recovery, Forbes used data produced by Altosresearch.com, a Mountain View, Calif.-based research firm that tracks the percentage of homes on the market that have seen price reductions. Altos watches these numbers for 20 Metropolitan Statistical Areas: geographic entities defined by the U.S. Office of Management and Budget, for use in collecting statistics. These MSAs were chosen based on the cities used for the S&P/Case-Schiller 20-city home price index, which is used to track U.S. residential real estate trends.

The news is best in Las Vegas, Phoenix and Miami, markets that saw the steepest price inflation a couple of years ago. In these places, the number of cut-price homes is down 24, 18 and 12 percentage points since Jan. 1, respectively.

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