Where Not to Buy

Five regions to avoid - at least for the next year or so.

By Paul Kaihla, Janet Rae-Dupree, and Michael Fitzhugh

(Business 2.0 Magazine) -- Now that we've pointed out which markets are poised for a bull run in the next cycle, we'd be remiss if we didn't also offer some guidance on which locales look the most vulnerable right now. So we asked a few of the top economists at Moody's Economy.com and Global Insight to tell us which cities will see the biggest dives in median home prices during the next 12 months.

1. CALIFORNIA'S CENTRAL VALLEY (Bakersfield, Fresno, Merced, Sacramento, Stockton)

Five of the cities on the Bottom 10 list (see below) are from this region, making the long rural stretch of Highway 99 between Sacramento and Bakersfield look like a treacherous real estate ditch. Home prices shot up here by as much as 60 percent during the past two years as big homebuilders, squeezed out of the Bay Area and Los Angeles by lack of space, arrived in search of raw land at bargain prices.

Problem is, the Central Valley's base industry (agriculture) creates the lowest-paying jobs, and chronically high unemployment rates persist throughout the region. "A market where housing has increased by so much so fast when unemployment is that high is unsustainable," says Frank Owens, who sits on the board of Fresno's builders association. "This market is going south."

The market went south in a lot of other places during the past year. Since the Bottom 10 list doesn't begin to point to all the radioactive hot spots around the country, allow us to point out a few more housing markets where extreme caution is highly recommended:

2. SOUTHWEST FLORIDA (Fort Myers, Naples, Punta Gorda, Sarasota)

A typical home goes for $500,000, and prices rose 25 percent last year. A local economy with a thin base - retirees - can't sustain the heat.

3. THE JERSEY SHORE (Atlantic City, Ocean City)

Prices here soared as Philadelphia commuters bid for condos against second-home buyers from across the Eastern Seaboard. But the latter group usually tries to get out from under mortgage No. 2 when interest rates start climbing.

4. PHOENIX

Last year as many as a third of new home sales here went to speculators and investors. Many of them are now competing with builders to dump their holdings, and prices in some developments have dropped by more than $100,000.

5. CALIFORNIA'S INLAND EMPIRE (Riverside and San Bernardino counties)

The housing and construction boom has been the main driver of employment growth for this region east of Los Angeles. Now job losses from the slowdown will stagnate demand.

THE BOTTOM 10: U.S. cities where median home prices are expected to drop the most in the coming year.

1. Stockton, CA (minus 9.7 percent)

2. Merced, CA (minus 8.9 percent)

3. Reno/Sparks, NV (minus 8.9 percent)

4. Fresno, CA (minus 7.9 percent)

5. Vallejo/Fairfield, CA (minus 7.8 percent)

6. Las Vegas, NV (minus 7.1 percent)

7. Bakersfield, CA (minus 6.6 percent)

8. Sacramento, CA (minus 6.4 percent)

9. Washington, D.C. (minus 6.3 percent)

10. Tucson, AZ (minus 6.2 percent)

Source: Moody's Economy.com  Top of page

To send a letter to the editor about this story, click here.

Sponsors
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.