Home Prices: Now for the Good News

By Brad Reagan and Elizabeth O'Brien

Oct 20th, 2008

When the headlines about the housing market are apocalyptic, the last thing a homeowner wants to do is sell. But a funny thing happened to Jeff and Jennifer Boyd when they put their three-bedroom house in Philadelphia's Graduate Hospital district on the market this summer: They turned a profit. Just 45 days after the listing went up, a buyer snapped up the property for $555,000-$29,000 more than the Boyds paid in 2006. "We were pretty hesitant, knowing what the market is like," says Jeff. "But a few weeks later, it was gone."

Here's a surefire way to start an argument: Suggest that the housing market has reached bottom. To be sure, the near-term outlook is still grim, and nobody is forecasting a rapid nationwide rebound. But there are signs that the overbuilding and speculative pricing that inflated the bubble are working their way through the system. In October 2005, near the peak of the boom, the median sales price for a U.S. home reached 7.3 times per capita income; by this May it had fallen to 5.7, in line with historical norms. Nationally, the rate of decline in sales is slowing, and in some regions sales numbers have actually perked up. "The indicators are starting to look better," says Adam York, an economic analyst with Wachovia.

Why the disconnect? For starters, the national sales figures that get so much attention-and remain depressing-are brought down by boom-and-bust markets like Las Vegas, Miami and Phoenix. David Berson, chief economist with mortgage insurance firm The PMI Group, says that if hard-hit states like California, Arizona, Nevada and Florida are taken out of the statistical mix, the picture is much more promising. According to PMI's "risk index," which estimates the odds of prices falling in a given market, at least 65 percent of the nation's 386 metro areas have less than a 10 percent chance of seeing lower prices two years from now. What's more, the government's sweeping bailout of the financial sector could boost the housing market by making borthe rowing easier for buyers.

We dug into those numbers as well as other forecasts and analysis to determine which markets are in the best shape for a rebound. We also talked with housing experts to learn which kinds of neighborhoods and suburbs are thriving. Our search led us to 25 metropolitan areas that look particularly promising, and there are more than a few surprises. Here, we profile seven of the best-looking markets; for the full list of 25, see November's issue of SmartMoney magazine.

Philadelphia

Philadelphia bashers like to note how the city doesn’t quite keep pace with its northeastern neighbors New York and Boston. When it comes to real estate, that may be a good thing. While prices in the Big Apple and Beantown soared during the bubble years from 2003 to 2006, the City of Brotherly Love charted slow and steady growth. Over the past year, Philadelphia prices have stayed stable, while New York and Boston suffered small declines. And only 7 percent of Philly-area homeowners sold for a loss in the past year, according to Zillow—well below the national average of almost 24 percent.

The region did see some overbuilding, but employers such as pharmaceutical and other health care companies are drawing an influx of newcomers to the suburbs. That’s especially true in many communities in the Delaware Valley including Collegeville, a former bedroom community 30 minutes northwest of Philly’s city center that is now home to operations of both Wyeth and GlaxoSmithKline, with mutual fund giant Vanguard just a few towns down the road. So named for the leafy campus of Ursinus College, Collegeville offers multi-acre horse farms and country estates for executive types, with more quaint accommodations in town for tweedy academics. Keller Williams Real Estate, a local brokerage which actually has sales figures in the Delaware Valley that are going up, says Collegeville prices are up 16 percent this year. “Based on the National real estate outlook, buyers are putting in low-ball offers and we are having to educate the buyers to the local scene which is a lot better than almost any place else,” says Realtor, Richard Hopkinson. Other Philly suburbs are benefiting from the more traditional migration of young families from the city center. The Boyds, the couple who sold their house in town at a profit, are using the proceeds to buy a four-bedroom, 3,000-square-foot home in a new development in Skippack, Pa.