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| Reviewing the Prospects of “Bounce-Back” Cities |
| Written by Jonathan Smoke | |
| 10.03.2007 | |
 Discuss this article on the forums. (0 posts)Going through a stack of mail last night, I was intrigued by the cover of one of my favorite magazines, Business 2.0. Two things jumped out at me: the cover story on “How to Play the Real Estate Bounce-Back” and the blurb at the top announcing this was the final issue. In homage to the magazine’s passing, I thought it would be fun to review the top 10 cities “poised for recovery” according to author Paul Kaihla, with assistance from Moody’s Economy.com. You can go through the article’s recommendations through an online feature at CNNMoney.com. The list ranks the top 10 cities by expected price appreciation on Moody’s forecast for median existing home prices between the first quarter of 2008 and the fourth quarter of 2009. That’s a very limited criterion combined with a short horizon to base housing investments. But, since we use the same data only over a longer time frame for a portion of our Housing Prospects index, I expected these cities to be fairly well aligned with our first released Housing Prospect Index report. Gee, was I optimistic about that alignment. We agree on the relatively bright prospects of Atlanta, Austin, and Houston. The rest of the proffered top 10 could produce more pain than gain according to our analysis. Number one on their list, Dallas, is supposedly already reached its bottom. Based on our read of the total permits equilibrium, we think Dallas has a bit further to fall in sales to work off the current excess supply. We rank Dallas 216 out of 361 markets. Indy, the list’s number two is in good shape relative to inventories but its economy is on relatively shaky ground, which contributes to higher chances of home price declines. Indy is 102 on our list. New Orleans at number three has similar weaknesses to Indy, only worse, so New Orleans ranks 300 on our list. Montgomery and Mobile, numbers five and seven on the magazine’s list suffer from being currently overbuilt, which contributes to a relatively high level of price risk and diminished longer term appreciation potential. We rank these Alabama cities at 165 and 186 respectively. Memphis at number six is overbuilt and suffers from relatively weak economic prospects. It ranks 276 on our list. And St. Louis, number 10 on the bounce-back cities list, is 337 on ours thanks to being currently overbuilt and having weak long-term appreciation prospects. National subscribers can download the full Housing Prospects Index report from the Market Reports. Our new report enhancements were announced on Tuesday. 
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