How to Tell if Your Housing Market Has Hit Bottom (Part 1)

by The Real Estate Faction on July 18, 2011

by David Crook, The Wall Street Journal

At first glance, you’re not likely to see a lot of similarities between stately Cambridge, Mass., and sprawling Denton, Texas.

Amid the continuing gloom in the U.S. housing market, you can find small pockets of home-price stability — communities that are actually recovering from the housing bust. WSJ’s David Crook talks with Kelsey Hubbard about what those communities can teach today’s home buyers and sellers.

Cambridge (population about 105,000) was already more than 200 years old when Denton (120,000) was founded in 1857. From the center of Cambridge, it’s an easy stroll across the Charles River into Boston. Denton, in contrast, sits where Interstate Highway 35 divides—to the west, it’s 41 miles to Fort Worth; to the east, 39 miles to Dallas.

But both are college towns. Cambridge is well known as the home of Harvard University and the Massachusetts Institute of Technology. Denton has North Texas State University and Texas Woman’s University.

They have something else in common, too. Both have pretty much recovered from the five-year-and-counting housing recession. And both provide invaluable clues for those looking to decipher whether their own markets have seen the worst of the crisis.

According to a statistical analysis performed for The Wall Street Journal by the online real-estate information and search firm Zillow, home values in a handful of communities are where they were just before the most frenzied days of the real-estate bubble. Focusing on communities with sufficient sales activity to produce statistically valid value estimates, Zillow spotted 25 places that are within single-digit percentage points of their home-value peaks. (Zillow found no communities where values have surpassed their high-water marks.) Not bad considering that home values in some major metropolitan areas are at half their bubble-era peaks.

As a result, spotting the factors that have helped those communities get by may allow all homeowners to better gauge what’s going on where they live—and what the future may hold for their home’s value.

Some words of caution.

First: Don’t look at these as housing-market “winners,” and don’t go looking for new places where you can score a killing. That’s the thinking that got much of the country in trouble in the first place. Housing isn’t an investment like stocks or bonds and shouldn’t be approached that way.

Second: Although many of the areas have certain traits in common, most are just nice places to live, places where anyone might want to work and raise a family. Each is special in its own right.

Finally, the biggest reason that most are surviving the downturn is because they never experienced the huge price runups that Florida, Nevada or California did in the first place.

In Denton, Zillow estimates values are down 7.4% from their peak, while values are down about 8.6% in Cambridge. That’s about where prices stood in 2004 in both towns. In contrast, the latest Case-Shiller Home Price Index indicates national prices are at 2002 levels.

So what should you look for if you are thinking of selling your home or buying a new one? What does a healthy real-estate market look like today?

Here are three big factors to look for. If your community shares any of these traits, you may already be on the rebound.

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