Prices in 100 U.S. Cities Expected To Decline for Next Few Years

Home buyers have another reason to sit on their hands. In the latest news from the slumping U.S. housing market, a report released this week says that median house prices are likely to decline more than 10% over the next few years in 20 metro areas, including Las Vegas, Tucson, Ariz., and Washington, D.C.

The report, by Moody’s Inc., a research firm in West Chester, Pa., also says that the slump won’t end quickly. Indeed, according to the report, prices may keep falling until 2008 or even 2009 in some areas. In all, prices are falling or likely to decline soon in about 100 metro areas, the firm says.

The study comes on the heels of a survey from the U.S. Census Bureau showing that 35% of American homeowners with mortgages last year spent 30% or more of their household income on housing costs, including loan payments, real-estate taxes, insurance and utilities. In 2003, a similar survey found that 30% of such homeowners were spending that much on housing. The new survey illustrates the strain on household budgets that has already helped slow house-price increases in some areas and push them modestly lower in others.

The proliferation of headlines about a weakening housing market is encouraging some potential buyers to hold off until prices look like they’re near a bottom.

Nillani McClain, a 35-year-old human-resources manager who lives in an apartment in Brooklyn, N.Y., has been looking at condominiums and townhouses in New Jersey with her husband, David. But given the recent slowdown news, the McClains are leaning toward waiting until next spring — and then looking in Manhattan, a market they had originally thought they couldn’t afford.

“We are taking into consideration the option of finding something in the city and not having to move out to Jersey if prices drop considerably,” Ms. McClain says.

Buyers and sellers can use forecasts from and others for guidance as they try to figure out how to play this tricky market. But because the reports don’t agree on which markets will be the weakest or how severe the slump will be, they could also be left scratching their heads.

While various studies generally agree that some of the biggest risks of declines are in California and Florida, there are striking differences, reflecting different forecasting methods. For instance, a recent “risk index” study published by PMI Mortgage Insurance Co. ranks the Boston metro area as the seventh-riskiest in the nation in terms of the likelihood of price declines over the next two years. But says that home prices in Boston likely bottomed out in this year’s third quarter after a modest 2.2% decline.

No study, of course, can tell exactly how bad the market will get or when it will hit bottom. Even if accurate, a prediction for a metro area won’t hold true for all neighborhoods or all types of housing.

The good news, according to’s chief economist, Mark Zandi, is that the current downturn so far looks more like a correction than a crash on a national scale, slowing economic growth but not tipping the economy into a recession. The bad news is that falling prices could be very painful for some people who have bought homes near peak levels over the past year or so in such areas as California, Arizona, Nevada, Florida, Washington, D.C., and the coastal Northeast.

Housing markets in most of these areas began turning down about a year ago after prices more than doubled in many cities during a frantic five-year buying spree. It still isn’t clear how hard the landing will be. Last week, the National Association of Realtors reported that the median sales price of a previously occupied home slipped 1.7% in August from a year earlier. That was the first decline from a year earlier in more than a decade.

Other signals are mixed. Yesterday, for example, the Mortgage Bankers Association reported that its seasonally adjusted index of applications for home-purchase loans surged 7.6% in the week ended Sept. 29. But that index is volatile from week to week, and it is still down about 15% from a year ago. In a more positive sign for housing, mortgage interest rates have declined over the past two months. Inventories of unsold homes continue to rise in much of the country, though they have leveled off or fallen slightly in some cities. based its price forecasts on a broad range of factors including demographic trends, job markets, mortgage rates, lending standards, construction costs and limits on land development. Mr. Zandi says the economic model doesn’t take into account the supply of previously occupied homes available for sale because there aren’t enough reliable data on that nationwide.

Among major metro areas vulnerable to steep price declines, points to Nassau and Suffolk counties in suburban New York. For the rest of the New York City area, the firm sees a milder downturn, with the median price bottoming out in late 2008 just 3.5% below its peak in this year’s second quarter.

The Las Vegas housing market is being hurt by an exodus of speculators who have dumped homes on the market, and construction payrolls have been shrinking as developers cancel condo projects. But says job growth in leisure and retail businesses will help offset the housing downturn in Las Vegas.

Miami’s high house prices have sent some residents scurrying northward to slightly less expensive areas, and the city is highly dependent on investment from Latin America, which “could easily dry up or even go into reverse,” the report warns.

For sellers, the real-estate news adds to their headaches. Laurie Siegel, a 62-year-old retired nurse in West Orange, N.J., is trying to sell a three-bedroom house so that she can buy a condo. The house was listed six weeks ago at $449,900, and Ms. Siegel hasn’t had any serious offers.

“If I don’t get enough for the house, how am I going to buy the condo?” Ms. Siegel asks.

So far, she has refused to lower the price of the house. “I think it’s all a gamble,” she says.