Where are America’s Fastest-Falling Housing Markets?

Everyone knows the housing market is slowing.

The question is how fast, and how painfully.

It’s not an easy question to answer, especially since, like politics, it’s all local.

Economists may speak in national terms, but data looks different on a grand scale from neighborhood statistics. Even during the peak of the housing boom, some towns and counties (and even whole states) felt nary a nudge upward in home prices. Right now, you don’t see people in those places griping about huge inventory or declining sales.

But we can pinpoint places that have slowed rapidly, where home prices may still even be increasing, but at a dramatically different pace than before, when historically low mortgage rates fueled a home-buying surge like never before. The surprise is that they aren’t necessarily areas with struggling economies, where prices have already dropped over the past year.

Take Ann Arbor, a city stung by thousands of auto-industry layoffs, rates as the worst performing real estate market between the second quarter of 2005 and the second quarter of 2006, according to data from the Office of Federal Housing Enterprise Oversight (OFHEO).

This segment of the Michigan housing market suffered a 1.2 percent decline in median home value over that span, compared with a 3.7 percent gain nationally. That hardly sounds promising, but some metro areas have held up a lot less well over the past year.

Many such markets, such as Reno, Nev., and Barnstable, Mass., on Cape Cod, are driven by seasonal, second-home buyers, who are often the first to hit the showers during a slump.

To identify some of the most dramatically slowing metro areas in the United States, the National Association of Realtors averaged out the annual price change for each location from 2002 through 2005.

For instance, home price growth in Barnstable dropped to 4.9 percent over the past year from an annual average of 14.4 percent, a difference of 9.5 percent. Reno’s numbers are similar, slowing to 8.8 percent growth this past year from 17.8 percent a year from 2002-2005.

Of the 22 metro areas where prices rose the most dramatically from 2002 to 2005, 17 of them slowed down in 2006. That type of rapid slowdown can be as strong a warning sign as a weak job market or a demographic shift.

Most, like portions of the California real estate market, are victims of their own success, forced into slow growth or even price declines as a way to shake out a market that’s come a little too far, too fast.

Real estate prices in San Diego, the fastest decelerating market in 2006, are considered by mortgage insurer PMI Group as having better than a 60 percent chance of falling over the next two years. The 18 percent appreciation the city averaged in 2002-2005 outpaced income growth so much that homes are now unaffordable.

Measured in terms of appreciation declines from the 2002-2005 period to the second quarter 2005-2006 period, here are THE TOP TEN SLOWING U.S. MARKETS:

1. San Diego-Carlsbad-San Marcos, CA: -12.5%
2. Santa Barbara-Santa Maria, CA: -11.8%
3. Sacramento-Arden-Arcade, CA: -11.1%
4. Yuba City, CA: -10%
5. Barnstable, MA: -9.5%
6. Providence, R.I.: -9.1%
7. Reno-Sparks, Nev.: -9%
8. Carson City, Nev.: -8.9%
9. Boston-Quincy, Mass.: -8.6%
10. Sandusky, Ohio: -8.2%