Housing: Best Recovery Bets

1. San Francisco
Median home price: $675,000
Value lost since 2006: 25.7%
Forecast gain by 2011*: 4.8%

The San Francisco metro area has seen its home values drop by a quarter, and the city still has some pain to work through. The city's median home price is expected fall another 8.3% by June 2010.

After that, however, the market there may come roaring back: Fiserv predicts a 14.3% gain between June 2010 and June 2011. Averaged out, that means a 4.8% gain over the next two years.

One reason for the sharp comeback is that much of the area's excess inventory will have been sold. It's already dropped by nearly in half over the past year.

The recovery will be delayed, though, as the area -- particularly Oakland and the East Bay -- works through its foreclosure problems. During the first six months of 2009, one of every 52 homes had at least one foreclosure filing.

The good news, according to Mark Fleming, chief economist for First American CoreLogic, is that core city neighborhoods don't have nearly as many foreclosures as those out on the fringe. The steady demand in those communities will serve as a base as other neighborhoods rebuild.


2. Seattle
Median home price: $371,000
Value lost since 2006: 15.2%
Forecast gain by 2011*: 3.8%

Seattle has become a world-class city with a diverse, vibrant economy. As a home to manufacturers such as Boeing and software providers such as Microsoft, the job market has held up better than average, with a current unemployment rate of 8.8%.

Home prices had a softer landing as well, dropping just 15.2% over the past three years, about half the national average. However, prices do tend to be volatile, according to Mark Fleming, chief economist for First American CoreLogic. The lack of available land for development is one reason for that volatility, as are political restrictions on growth.

After another modest price decline of 2.3% in the next eight months, the market should begin to turn up. Between June 2010 and June 2011, the city should see a gain of 6.2%. Averaged out, that means a 3.8% gain over the next two years*.

And while that may not sound all that robust for those jaded by the annual double-digit returns recorded during the boom, that performance will be one of the best of any large city during that period.


3. Pittsburgh
Median home price: $122,000
Value lost since 2006: 0.8%
Forecast gain by 2011*: 2.2%


Pittsburgh's main problem has been a brain drain. The metro area has been losing residents for years: Its population shrank 3% since the 2000 census, and the core city of Pittsburgh has lost almost half its population over the past 50 years. But that worked in Pittsburgh's favor when it came to real estate. There was no shortage of housing during the boom years, which helped keep a heavy lid on housing prices. Homebuyers never had to resort to exotic mortgages just to buy a starter place.

There are few barriers to entry for homebuyers here, according to Mark Fleming, chief economist for First American CoreLogic. As a result, Pittsburgh's foreclosure rate has been running at about half the national average.

Meanwhile, the area's economy has transitioned from steel to services, finance, bio-med, health care and other more sustainable industries. This diversification has enabled the area to muddle through the recession with less angst than many other places. "It's where we would like to see Detroit go through over the next decade," said Fleming. The unemployment rate for the metro area is a modest 7.9%.

Once the national recovery begins in earnest, the housing market should start to record moderate gains. Fiserv predicts a home price rise of 0.5% by June 2010 followed by a 1.7% increase in the following 12 months. Averaged out, that means a 2.2% gain over the next two years.*