Housing Bust Rebels

Real Estate February 20, 2007, 12:00AM EST

Affordable housing and booming job markets have helped some metros buck the national trend of stagnant home prices
by Maya Roney


You can buy a house on Park Place with $200 in Monopoly money, but the real thing will cost a whole lot more, especially after last year. Even as national home prices saw their worst-ever decline last quarter, the median home price in the Atlantic City (N.J.) area shot up almost 26%, to $339,800, marking the sharpest year-over-year increase of any U.S. metropolitan area.

Atlantic City isn't the only place that appears immune to the U.S. housing "bust." Seventy-one other U.S. metro areas saw price gains in the fourth quarter of 2006 from a year earlier, including 14 metros with increases of 10% or more, according to a Feb. 15 report from the National Association of Realtors (NAR).

Five metro areas remained unchanged and 73 areas had price declines, contributing to an overall U.S. median home price drop of 2.7%, to $219,300, the biggest year-over-year decrease on record. Home prices in the Sarasota (Fla.) area fell 18%, the sharpest decline among the metro areas.

Rare Affordability
How did Sarasota lose out and Atlantic City get lucky? In general, the more home prices increased in an area during the housing boom (2001-05, roughly), the more they needed to go down in 2006 to create a more balanced market in which prices matched household income.

Areas such as the Florida coast and Southern California saw the most speculation and consequently the most rapid price runups in the boom years. Places that didn't experience dramatic price appreciation until recently, including Atlantic City, Salt Lake City, Texas, and the Pacific Northwest, remained relatively affordable last year, drawing buyers and sending prices skyward.

"Everybody got used to that double-digit appreciation that was going on and that just really was not reality," says Bill Hanley, president of the New Jersey Association of Realtors (NJAR). "We're coming into a balanced market again."

Casino Boom
Economic law isn't the only factor driving home price gains in many metro areas. More than $2 billion in new construction in Atlantic City, including casinos, megaresorts, and shopping centers, is now attracting a "yuppie" crowd, according to Drew Fishman, president elect of NJAR and an Atlantic County-based realtor.

"We're seeing a whole new wave of casino activity going on," Fishman says. Many buyers are choosing second homes in the metro area to be close to the ocean and entertainment for a more affordable price than they might pay in other beach towns. There's even speculation that hotel-casinos will soon start to add condo residences, as Las Vegas has already done, Fishman says.

Job creation also led to significant home price appreciation in some metro areas last year, especially in the Northwest states. Three Oregon metros—Salem, Portland, and Eugene—and two Washington metros—Seattle and Spokane—saw double-digit price growth in the fourth quarter of 2006.

"Our market just seems to keep chugging along," says Terry Miller, a realtor at Seattle-based Coldwell Banker Bain. The median home price in the Seattle area was up 11.3% last quarter, to $372,900. Tech companies like Microsoft (MSFT) and Amazon (AMZN) are headquartered in the Seattle area, and aerospace-manufacturer Boeing (BA) remains one of Seattle's largest employers. In 2006, Seattle began a major redevelopment of its South Lake Union neighborhood to attract more biotech companies to the city. Microsoft cofounder Paul Allen has contributed financially to the effort.

Tough Negotiators
A large and increasing immigrant population in the Seattle area has also helped create demand for housing, Miller says. In addition, the Northwest region's price increases in recent years have not been as significant as in other parts of the U.S. "We had times when we were slower than the rest of the country," Miller says.

Maybe the slump in national home prices isn't the housing market's biggest problem, as evidenced by the positive price changes in nearly half of the nation's metro areas. In fact, problems may just be starting for areas like Seattle, which could see prices get out of control. "Prices are so high now, it is a concern," says Miller.

It may be a buyer's market in many parts of the U.S., but it seems like sellers have been tough negotiators when it comes to price. NAR has said the last three months of 2006 marked the bottom of the current housing cycle. Although the 2.7% decline in national home prices is the biggest on record, it pales in comparison to the 10.1% decline in total existing U.S. home sales in the same period.

"The number of homes selling has gone down, but the homes that are selling are selling around the same price and are appreciating [in some areas]," says NJAR's Hanley. "I don't believe that everything's falling out."

Click here to see the U.S. Metro Areas with the Biggest Home Price Gains.

Roney is Real Estate writer for BusinessWeek.com.

http://www.businessweek.com/bwdaily/dnflash/content/feb2007/db20070220_829700.htm