30-city real estate outlook

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Slow-motion sales in many housing markets have folks struggling for survival. Add the subprime crisis and talk of a recession, and you can expect another rough year for residential real estate.

“There’s not a market that’s immune at this point,” says Chris Porter, manager with John Burns Real Estate Consulting.

For a look at 30 top markets, Bankrate sought forecasts from those who follow trends in home sales and prices, as well as factors such as foreclosures and job growth.

All agree that existing home sales and housing starts will continue to decline in 2008. But opinions differ on when improvement in resales and new home sales will occur.

Panel of experts
  • Ken Fears, National Association of Realtors.
  • Bernard Markstein, senior economist and director of forecasting. National Association of Home Builders.
  • David Stiff, chief economist, Fiserv Lending Solutions.
  • Chris Porter, manager, John Burns Real Estate Consulting.
  • Ingo Winzer, president, Local Market Monitor.
Ups and downs

David Stiff’s U.S. forecast shows prices hitting bottom in the middle of 2009.

“Some prices don’t start to bottom out until early 2010,” he says. But in key markets where the rate of appreciation accelerated faster than household income growth — like many cities in California and Florida, as well as Phoenix, Las Vegas and Washington, D.C. — he expects prices to drop by 20 percent or more.

Nationally, Fiserv projects a 13.1 percent decline in home prices from the third quarter of 2007 to the third quarter of 2008, with the numbers continuing to decrease the following year — by 2.8 percent from the third quarter of 2008 to the third quarter of 2009.

The NAR forecasts that existing home sales will remain weak for all of 2008, with the worst happening in the middle, and improving slightly toward the end of the year, Ken Fears says. For all of 2008, existing-home sales are likely to total 5.39 million, and then rise 6.1 percent to 5.72 million next year.

“New home sales will be off sharply,” Fears says. “That’s good; that’s not a bad thing for the market because all it does is reduce supply.”

Housing starts are expected to hit bottom likely in the middle of the year, says the NAHB’s Bernard Markstein.

“We’re the optimists,” says Markstein.

The homebuilder organization is forecasting a little more than 1 million housing starts — 719,000 single-family, 284,000 multifamily — this year. Last year, there were roughly 1.15 million starts, according to preliminary fourth quarter data. That’s compared to about 2.1 million during the peak in 2005, Markstein says.

Lower-priced homes are a prominent group under construction. They could be below $150,000 in some markets or below $350,000 in more expensive areas like Washington, D.C., he says. Even with improvements in formerly hot markets, such as California, South Florida, Phoenix and Washington, D.C., they’ll be the slowest to recover because of the supply.

“It’s still going to be painful,” Markstein says.

As for prices, despite widespread talk of declines, about half of the 150 metropolitan statistical areas actually witnessed rising home prices in the fourth quarter of 2007, according to the NAR, which expects existing home prices to decline 1.2 percent in 2008, reaching a median of $216,300. In 2009 the group expects median home prices to rise 3.2 percent to $223,200.

Johns Burns Real Estate Consulting estimates that resale transactions will drop to about 3.8 million, compared to 4.9 million last year.

“We do think that sale volumes are going to be sort of the first to stabilize,” Porter says. “Then (we’ll) see stabilization in listings, followed by stabilized prices.”

The number of new home sales is likely to decline 17.7 percent to 637,000 in 2008 before rising 7.6 percent to 685,000 in 2009, according to the NAR. The median new home price is expected to fall 4.3 percent to $236,300 in 2008, and then increase 5 percent in 2009.

Financial factors

The subprime crisis that set the industry back last year will continue to push progress back in 2008, says Porter.

Fiserv’s Stiff agrees that forecasts are more pessimistic than expected because things deteriorated so badly in the fourth quarter.

“We keep pushing out the point where prices hit the bottom because I think everybody underestimated how severe the mortgage crisis would be,” he says. “Even if you wanted to buy, you either couldn’t get financing or had to pay a much higher interest rate than in the past.”

Compounding the problem are foreclosures, which rose 75 percent, to a record 2.2 million foreclosure filings on nearly 1.3 million properties in 2007, according to Irvine, Calif.-based RealtyTrac. A total of 86 metropolitan areas reported increases from 2006, and the top 20 metro cities with the highest foreclosure rates were predominately in California, Ohio, Florida and Michigan.

Porter says fourth quarter 2007 data shows that sellers are finally starting to come down and accept lower offers.

“They realize in order to sell their home, they have to give in a little bit on prices,” says Porter

But prices are not likely to bottom out in the resale market until 2010.

“(Sellers are) not willing to give up a lot of equity they think they have accumulated in their home over the last several years,” Porter says.

Ingo Winzer, president of Massachusetts-based Local Market Monitor, agrees that in some markets, prices will fall for years to reach equilibrium.

“I think that we are in for several years of not necessarily a bad real estate market, but let’s say a much quieter market than we’ve had the last five years or so,” he says.

Winzer’s data compares actual home prices in the market with an index using factors, such as local income, to determine if a market is overpriced or undervalued.

“There’s not going to be a quick snapback of demand and snapback in volume, and particularly there’s not going to be the same kind of growth in prices that we’ve seen in so many markets in the last five years or so,” he says. “I also believe there is a moderate chance that we’re actually in a recession right now, and a recession that’s driven by the fact that consumers don’t have any money left.”

As a result, Winzer says, folks will be spending less in the next few years, partly out of caution, because of the lack of credit, and partly because they feel they don’t have the financial assets, in terms of home value, behind them.

“It will keep a number of people out of the housing market and price increases relatively low, and it’s going to last for a while,” he says. Those double-digit increases won’t happen again for another five to 10 years, depending on population growth, Winzer says.

Aiding that will be financing initiatives, including the decision by Congress in the economic stimulus package to increase maximum amounts of conforming loans in some markets. The association forecasts that higher loan limits will result in a rise in home sales and prices.

Also, the NAR says it expects 30-year fixed-rate mortgages to average 6.3 percent in 2009.

Another factor will be a rebound in the FHA market, which Fears says is more affected by helping borrowers stay in good standing, compared to subprime loans.

FHA rates also are about 3 percentage points less than those in subprime market which is an “incredible improvement in affordability,” Fears says.

Top 30 areas
Metro Area

Average 30-year fixed rate

2008 price forecast

+/- in percentage

Overnight average*
Albuquerque, N.M.
+ 4.5
– 0.1
Atlantic City, N.J.
– 20.3
Birmingham, Ala.
+ 3.5
Bismarck, N.D.
+ 2.1
Boise, Idaho
– 11.1
– 6.3
Cape Coral/Fort Myers, Fla.
– 17
Charleston, S.C.
+ 0.2
– 0.5
– 9
– 9.9
Honolulu, Hawaii
– 9
+ 2.3
Las Vegas
– 23.3
Little Rock, Ark.
+ 2.1
Los Angeles
– 18.6
Memphis, Tenn.
+ 1.1
Miami/Fort Lauderdale, Fla.
– 21.6
– 4.9
New Orleans
+ 2.4
Raleigh, N.C.
+ 1.3
Salt Lake City
– 7
San Antonio, Texas
+ 2.5
– 3.9
Stockton, Calif.
– 20.6
Syracuse, N.Y.
+ 3..4
Tucson, Ariz.
– 15.4
Washington, D.C.
– 10.8
Wichita, Kansas
+ 2.4