4. San Francisco
San Francisco
This 1,200 square-foot, two bedroom is a bargain in pricey San Francisco.
Median home price: $465,900

Home prices in San Francisco may be dropping but that doesn't mean that the "City by the Bay" has become a real-estate bargain.

The second most densely-populated city in the nation (behind New York) is a prime example of the old real estate maxim: "They're not making any more land." With so many people vying for so little space, prices can only fall so far. A 1,200 square-foot row home in town can easily fetch more than $500,000 and suburban houses are also equally expensive.

The area economy has always been a diverse mix of finance, trade, tourism and light industry. In the city's South of Market area, a once-struggling part of town is now a hot spot for "new media" and software companies: Twitter, Wired and Cnet Networks have all found homes here. The metro area unemployment rate dropped to 9.5% in April from 10.3% a year earlier. It's now close to the national average and far below California's 11.9%.

Home prices in San Francisco are more than 30% off their peak, according to Wells Fargo. Given that home prices have remained at a bottom for the past couple of years, they are not likely to decline much further. Should an economic recovery take hold, though, they are bound to start climbing again and that makes now a good time to buy, says local real estate agent Michael Mihelich.

Median home price data is for the first three months of 2011 and was compiled by the National Association of Realtors.
Last updated June 15 2011: 9:34 AM ET
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