10 Hard-Hit Housing Markets That Are Ready to Rebound

After slumping, home prices in these 10 cities are expected to rise over the next three to five years.

By SHARE

As the historic housing crash continues to hammer real estate prices from coast to coast, many homeowners probably can't remember the last time their property's value actually increased. But even with home prices still falling at the national level, a number of hard-hit housing markets are gearing up for a rebound. To pinpoint the cities most likely to go from slump to bump, we turned to Moody's Economy.com. Using S&P/Case-Shiller home price data, Moody's identified a handful of cities that took it on the chin during the crash—with property values dropping by more than 25 percent from peak to projected trough—but are expected to see strong home price appreciation in the relatively near future. Celia Chen, the senior director of housing economics at Moody's Economy.com, says home prices in many of these slump-to-bump cities became overvalued during the first half of the decade but have since fallen, or are in the process of falling, to extremely affordable levels. "That will encourage buyers back into the market and lift prices up," she says. Here is a look at 10 hard-hit housing markets that are ready for a rebound:

[Slide Show: 10 Hard-Hit Housing Markets That Are Ready to Rebound.]

1. Tacoma, Wash.: With about 200,000 residents, Tacoma is the second-largest city in Washington's lovely Puget Sound region. The city's abundance of government jobs, bountiful outdoor activities, and proximity to Seattle—just 32 miles away—helped drive home prices higher during the first half of the decade. But as the national housing crash picked up steam, Tacoma saw its real estate market decline sharply. Home prices in Tacoma dropped 24 percent from their peaks through the first quarter of 2009. Still, Moody's Economy.com expects the market to bounce back strongly, with home prices increasing 22 percent by the first quarter of 2012 and 41 percent by the first quarter of 2014. David Graybill, president and chief executive of the Tacoma-Pierce County Chamber of Commerce, says the area's large military presence and diversified economy will help to support rising home prices going forward. "We also have one of the nation's busiest ports, the Port of Tacoma, which is an international deep-water port," Graybill says. "And although most international trade is down currently, the long-term outlook is good."

2. San Diego: Sunny San Diego was on the leading edge of the housing market's dramatic boom and bust. Residential real estate "prices started running up in San Diego faster than many other places in the nation," Chen says. But the market has since crashed, with home prices plummeting nearly 42 percent from their peaks through the first quarter of 2009. Still, San Diego's high-tech and hospitality industries will spark economic strength and rekindle home price appreciation in the coming years, Chen says. Moody's Economy.com projects home prices in San Diego will rise about 13 percent by the first quarter of 2012, and 25 percent by the first quarter of 2014. "Technology is really what will drive the economy once the recession is over," Chen says. "There are a lot of high value-added jobs that are in the metro area."

3. San Francisco: Home prices in this city are expected to bounce back solidly as well. Real estate values in San Francisco had fallen 29 percent from their peaks through the first quarter of 2009. Chen says that San Francisco will pull out of the recession sooner than most other parts of the nation, and she expects future job and population growth to support rising home values. "The types of jobs [in San Francisco] generally tend to be higher paid, and personal income growth is going to accelerate [there] quicker," Chen says. "Personal income growth really does drive home prices." Moody's Economy.com projects that home prices in San Francisco will rise about 12 percent by the first quarter of 2012 and 26 percent by the first quarter of 2014.

4. Memphis: Home prices in Memphis fell 23 percent from their peaks through the first quarter of 2009. John Moore, the president and chief executive of the Greater Memphis Chamber, says that the area's exposure to subprime loans—although limited to several specific areas—played a key role in this decline. More recently, however, foreclosures linked to subprime mortgages have dropped, and investors have scooped up distressed properties at steep discounts, he says. In addition to its pleasant quality of life, Memphis's position as an important transportation hub will keep its economy humming and housing demand strong, Moore says. "We have the largest cargo airport in the world," he says. "We are the third-largest trucking corridor, fourth-largest inland port, and on top of that we are one of only three cities in the [United States] that is served by the five class-one railroads." In addition, Moore says that Memphis's low cost of living and strong healthcare system have made it a popular destination for retirees. Moody's Economy.com projects that home prices in Memphis will rise about 9 percent by the first quarter of 2012 and 24 percent by the first quarter of 2014.