Orlando short sale Blog

How Low Will Real Estate Go?

By Matt Woolsey, Forbes.com

Apr 17th, 2009

To figure out which housing markets have yet to reach bottom, we looked at the 50 largest metropolitan statistical areas in the U.S., as defined by the Office of Management and Budget and, using calculations from Moody’s, analyzed each area’s spending power, unemployment, housing and credit availability going back 27 years.

Over that time, each area’s home prices have fluctuated differently according to these factors. Moody’s calculations determine how much each area’s home prices would have to change to bring that particular housing market back to a state of balance. The further from equilibrium, the further the market has to go. Projections were made on the basis of the current rate of price decline, absorption rate, employment and salary deterioration, and how long it would take each metro to wash out to a historical point of balance.

All of this adds up to bad news in one of the states hardest hit by the real estate bust, Florida–particularly Miami, Orlando and Jacksonville. Home prices are down 32%, 27% and 9%, respectively, in year-over-year terms, and are expected to decline a further 53%, 48% and 39% in each area, according to our calculations. Each has decade highs in unemployment, not to mention still out-of-balance price-to-home-price ratios.

In Miami, home prices are $234,200 at the median, and that’s still six times the median income of $39,350, making it one of the nation’s least affordable markets. Unaffordable housing markets are hit particularly hard when unemployment spikes, especially over multiyear periods. In Miami’s case, unemployment has gone up steadily since 2007.

“These price decreases tend to add up in metro areas that have had continuous increases in the unemployment rate over the past two to three years,” says Andres Carbacho-Burgos, an economist at Economy.com.

And unemployment has a nasty way of compounding with other factors.

“Rising unemployment is accompanied by a whole host of other occurrences–rising defaults and foreclosures, reduced mortgage originations, falling incomes, reduced industry investment and construction, increasing outmigration, and lower long-term income prospects,” says Carbacho-Burgos.

In other words, as jobless rates go up a little, home prices sink a lot.

Top 5 Places With Fast-Falling Home Prices 

1. Orlando, Fla.
(Orlando-Kissimmee metro area)
Price correction necessary: 48%
Median income: $36,330
Median home price: $175,200
Unemployment rate: 9.7%
Projected bottom: June 2011

2. Miami, Fla.
(Miami-Fort Lauderdale–Pompano Beach metro area)
Price correction necessary: 53%
Median income: $39,350
Median home price: $234,200
Unemployment rate: 8.2%
Projected bottom: June 2011

3. Jacksonville, Fla.
(Jacksonville metro area)
Price correction necessary: 39%
Median income: $37,690
Median home price: $160,700
Unemployment rate: 9.2%
Projected bottom: June 2011

4. Tampa, Fla.
(Tampa–St. Petersburg–Clearwater metro area)
Price correction necessary: 36%
Median income: $37,530
Median home price: $151,500
Unemployment rate: 10.2%
Projected bottom: December 2010

5. Los Angeles, Calif.
(Los Angeles-Long Beach–Santa Ana metro area)
Price correction necessary: 29%
Median income: $45,390
Median home price: $354,300
Unemployment rate: 10.2%
Projected bottom: March 2010