4. Washington: As the federal government scrambles to undo the damage of the nastiest recession in decades, home prices in the Washington area have grown increasingly affordable. (This metropolitan statistical area includes portions of Maryland and Virginia as well.) House prices jumped nearly 86 percent from 2002 to 2007 before taking a 31 percent dive. As a result, the price-to-income ratio of the Washington area fell to 1.12 through the third quarter of 2009. That is significantly less than the area's average price-to-income ratio of 1.69 for the 15 years ending in 2003. Still, Moody's Economy.com projects that home prices in the area will continue declining into 2011 before they begin to climb higher.
5. Mobile, Ala.: After increasing during the first half of the previous decade, home prices in Mobile, Ala., have dropped about 7 percent in recent years. At the same time, the area's price-to-income ratio has fallen to 1.52 through the third quarter of 2009. That is significantly less than its average price-to-income ratio of 2.18 for the 15 years ending in 2003. Home prices in Mobile are projected to bottom this year before rising modestly, as the local economy gets help from its competitive port and an abundance of government jobs, according to Moody's Economy.com.
6. Las Cruces, N.M.: The housing market in Las Cruces, N.M., has become increasingly undervalued in recent years when compared with historical averages. The area's price-to-income ratio has fallen from 3.03 in the first quarter of 2006 to 1.37 through the third quarter of 2009. Growing affordability is one reason for the increase in home sales in the area in the third quarter. And aided by government jobs and healthcare employment, Las Cruces's population is expected to grow twice as fast as the rest of the country's. That will help Las Cruces emerge as one of the most rapidly expanding areas in the country over the next half decade, according to Moody's Economy.com.
7. Fayetteville, N.C.: The housing market in the military town of Fayetteville, N.C., also successfully avoided wild price swings that devastated other parts of the country. Rather than surging, home prices remained largely flat for most of the previous decade. Today, house prices in Fayetteville remain undervalued when compared with longer-term averages. The area's price-to-income ratio dropped to 1.23 through the third quarter of 2009, which is notably lower than its average ratio of 1.52 for the 15 years ending in 2003. Moody's Economy.com expects home prices in Fayetteville to bottom out in 2010, before moving slightly higher in subsequent years.
8. Phoenix: After jumping more than 85 percent from 2002 to 2006, home prices in the Phoenix area have crashed by 52 percent in recent years. The plunge has helped restore affordability to this warm, sunny location. From the fourth quarter of 2005 to the third quarter of 2009, the price-to-income ratio was cut in half. It now stands at just 1.52, notably lower than its 1.74 average for the 15 years before 2003. Even though the market may be relatively affordable, those buying property in the area should not expect a quick turnaround. Home prices in the Phoenix area aren't expected to move markedly higher until 2012, according to Moody's Economy.com.
9. Fort Worth/Arlington, Texas: In recent years, home prices in the Fort Worth and Arlington, Texas, area have also grown increasingly undervalued when compared with longer-term averages. The area's price-to-income ratio fell from 3.95 in the fourth quarter of 2005 to 1.89 through the third quarter of 2009. Compared with an average price-to-income ratio of 2.02 for the 15 years before 2003, house prices in the Fort Worth/Arlington area are now relatively undervalued. And with a labor market that is projected to perform better than the national average, home prices in this region are expected to hit bottom in 2011 and begin moving higher, according to Moody's Economy.com.
10. Cincinnati: Home prices in Cincinnati have remained relatively affordable throughout the nation's recent boom-and-bust cycle. The area's price-to-income ratio actually increased from 2006 to the third quarter of 2009. Its most recent reading of 1.41 is slightly below the 1.46 average ratio of the 15 years before 2003. Although home price declines have moderated in recent months, Moody's Economy.com believes further drops may be in store as additional houses go into foreclosure. Home prices in Cincinnati are expected to bottom out this year before creeping higher.