When — and Where — the Housing Market Is Due for a Bounce

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Residential Street in Napa, Calif.

The real estate recovery is just around the corner. Well, that’s if you believe the new housing numbers out this week.

According to the Fiserv Case-Shiller indexes, home prices continued to drop, a story that’s all-too-familiar. Specifically, home prices fell 4% year-over-year in the fourth quarter of 2011. The reason for the general “more of the same” feeling of repetitive, downbeat news is that housing prices lag sales activity. The cycle of recovery is that prices fall to the point where they’re perceived as “cheap,” buyers become enticed and jump in at those cheap prices, and then that forms a bottom to the market.

Subsequently, inventory tightens and prices rise — but the lag between activity and rising prices can run nine to 12 months, according to Fiserv.

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As a result, “the year-over-year decline in average home prices does not tell the full story of stabilization and recovery,” David Stiff, the firm’s chief economist, noted in a release. They predict that home prices will stabilize in the summer, and then rise at an average of 3.9% annually for the next five years. That would be welcome news for a market that, in aggregate, has been falling for six years.

More interesting, though, is the specific number crunching of data about each of 384 metro areas. Fiserv identified six metros that I would call strong bargains. To do this, the number crunchers took the 10 metro areas where prices are expected to rise the fastest over the next five years, and then teased out the half-dozen where prices have already fallen 50% or more.

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Now most of us can’t speculate on potential home appreciation the way we could bet on a value stock — and probably shouldn’t — but for what it’s worth, the six value plays identified by Fiserv are:

    1. Sebastian-Vero Beach, Fla. Area real estate prices are down 52% from peak, and they are expected to rise at an annualized rate of 8.1% over the next five years.
    2. Deltona-Daytona Beach-Ormond Beach, Fla. Down 53.5% from peak, with expected five-year annualized gains of 8.8%.
    3. Ocala, Fla. Down 52.1% from its highs, expected five-year annualized gains of 9.1%.
    4. Lakeland-Winter Haven, Fla. Down 55.8% from its peak, expected gains at an annualized rate of 9.2%.
    5. Napa, Calif. Down 51.7% from peak, expected five-year annualized gains of 9.7%.
    6. Madera-Chowchilla, Calif. Down 53.1%, with expected five-year annualized gains of 10.3%.

Those who are looking for a theme could do worse than to look at Florida, which has four of the six value-play metro areas. TIME Moneyland has previously reported on good pricing news in the “Land of Good Living”; in Feburary, Miami housing prices were up 0.6% over the month before, and 0.8% over the previous year. The Fiserv predictions are just one more piece of evidence that the state may soon see sunshine at the end of the tunnel of its significant foreclosure problem.

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