September credit meltdown thread

The survey attempted to identify the high and low points of housing prices in each of the markets, some of which started declining from their peak in the third quarter of 2005. All are median prices for single-family houses.

Nationally, Moody's is projecting an average price decline of 7.7 percent. That's a jump from the 6.6 percent total price drop that the company was forecasting in June and more than twice that of last October's forecast of a 3.6 percent price decrease.

Many of the worst hit cities are in Sun Belt areas that experienced outsized home-price growth during the real estate bubble, according to Arnold Slesers, an associate economist at Moody's. The home price correction in many of these cities will be severe as unsold new homes and leaps in foreclosures add to already big inventories.

The Stockton, Calif., metro area, where Moody's predicts a 25 percent price drop, will be the hardest hit among the 100 most populated cities surveyed.

Prices in Stockton - in California's Central Valley - rose quickly through 2005 as many would-be Bay Area buyers, frozen out of the expensive San Francisco area housing market, moved in. That influx drove up the median, single-family home price to about $375,000. Stockton prices peaked during the first quarter of 2006 and have gone downhill since. Prices likely won't turn around until the end of next year.

Just a tick or two behind Stockton in the Moody's survey were two Florida metro areas, Palm Bay/Melbourne (down 24.9 percent) and Sarasota/Bradenton (down 24.8 percent). All three markets are on almost the same peak-to-trough schedule, with Moody's forecasting that Sarasota will bottom out in the third quarter of 2008, a quarter sooner than the other two.

Outside of the Sun Belt, the worst hit areas are in the Midwest, where auto industry layoffs and plant closings have devastated local economies.

Detroit prices are experiencing the steepest fall of any large Rust Belt city. Moody's forecasts a 21.3 percent drop in Motown, which was hit earlier - in the third quarter of 2005 - and will suffer longer than most places. A turnaround in Detroit isn't expected until early 2009.

Six of the nation's 10 biggest cities face price declines of 1 percent or more with Phoenix, at a 17.8 percent loss, undergoing the worst reversal. The San Diego area will suffer through a 10.9 percent fall, Los Angeles (down 10.6 percent), New York, (down 5.3 percent), San Jose, (down 4.4 percent) and Philadelphia (down 3.1 percent) will also fall.

Among smaller cities, the biggest price declines will be in Saginaw, Mich., where the drop is forecasted at a numbing 31.8 percent. Other devastated markets will be in Punta Gorda, Fla. (down 28.8 percent), Merced, Calif (down 26.5 percent) and Santa Barbara, Calif. (down 25.9 percent).

The markets where Moody's is forecasting growth generally have one thing in common: Home prices in these cities are quite low. The top appreciating market will be the Brownsville/ Harlingen area in Texas, forecast to rise by 7.9 percent between July 2007 and the end of 2009. The median single-family home price there is less than $120,000.

In Killeen, Texas, the No. 2 appreciating market, prices are forecast to rise 4.6 percent and the median home price is about $129,000. Other inexpensive housing markets showing predicted price growth include Buffalo/Niagara Falls, N.Y.; Pittsburgh and Huntsville, Ala.

According to the National Association of Home Builders, the average price for a new home in 1980 was $76,400. By 2005, it had climbed to $295,100.

That's incredible! $218,700 in caaash ...
Before you get too excited thinking about investing in real estate and flipping houses, ponder this: Over a 25-year period, that $218,700 gain comes out to a 5.6% annualized return.

Think about that. If your stock investments had grown at just 5.6% annually over the past 25 years, you'd be kicking yourself. And with good reason -- during that time, the S&P 500 earned 10.3% annually -- almost double the average gains in housing. Hershey (NYSE: HSY) would have doubled the average house's return (13%). Johnson & Johnson (NYSE: JNJ) (18%) and General Electric (NYSE: GE) (19%) would have more than tripled it. Even Eastman Kodak (NYSE: EK), the very picture of long-haul underperformance, churned out a nearly 7% annualized gain from 1980 to 2005.