According to data released earlier this month, asking home prices in the nation’s largest metro regions rose for the fourth time in five months. This is another positive sign for the national real estate market. However, a review of the data, provided by home price authority Trulia.com, indicates that many of the country’s largest cities continue to struggle due to weak demand, high foreclosure rates and negative equity.
While many of the largest housing markets are showing positive signs, based on both vacancy rate and average year-over-year home price decline, many markets are taking longer than most to recover. Several of these are a product of the burst housing bubble, while others have been in trouble for decades. Based on housing data, 24/7 Wall St. identified the five “sickest” housing markets in America.
Three of the five worst housing markets are in California. They are Sacramento, San Diego and the Riverside-San Bernardino-Ontario metro region — the central part of the state often referred to as the “Inland Empire.” The remaining two cities are Virginia Beach, Va., and Toledo, Ohio. Each of these areas averaged a decline in home prices between the first six months of 2011 and the first six months of 2012.
These housing markets also have high home vacancy rates, indicating a lack of interest in these regions. High vacancy rates — the percentage of homes currently unoccupied — also tend to depress property values. Each of the five markets is among the top 25 for the highest home vacancy rates and rental vacancy rates. Riverside and Virginia Beach are in the top 15 for each. Toledo has the highest home vacancy rate in the country, at 5.6% of homes.
Trulia’s chief economist, Jed Kolko, told 24/7 Wall St. that the underlying causes of home price declines are high vacancy rates, foreclosures and negative equity. He explained that in many cases the burst housing bubble, and subsequent collapse of home prices, were the primary causes of these metro regions real estate woes.
Of the five markets on our list, three had among the largest declines in home prices during the recession. Housing in Sacramento and Riverside lost over half of their value during the decline. “Markets like Sacramento and Riverside-San Bernardino saw a lot of overbuilding during the bubble and therefore had more housing than there was demand. They have a lot of foreclosures still on the market, their short sales are still a big share of home sales,” said Kolko.
Indeed, according to the first quarter 2012 negative equity report from real estate site Zillow, each of the three California markets have among the largest proportions of homes with mortgages worth less than the current home value, known as underwater mortgages. In San Diego, nearly one in 10 mortgages is underwater.
The troubles in other markets, Kolko explained, are more the result of long-term economic difficulty, as in the case of Toledo, for example. Toledo and many other Midwestern locations, he explained, “are not suffering from overbuilding so much as from years of slow job growth and slow demand.” A review of Realtor.com’s search ranks, which rate the amount of interest in a housing market based on incoming searches, shows that Toledo is the second-least searched large housing market in the country.
RealtyTrac’s foreclosure rates for the first six months of the year also reflect the trouble these markets are in. Four of the five markets on our list are in the top third for homes in foreclosure. The Riverside-San Bernardino-Ontario metro area has the highest foreclosure rate in the country among the 75 markets we reviewed, with one out of every 39 homes with mortgages foreclosed upon between January and June.
To identify the America’s sickest housing markets, 24/7 Wall St. reviewed U.S. Census Bureau home and rental vacancy data for the 75 largest metropolitan statistical areas in the country for the first quarter of 2012. We then narrowed the list to markets where home vacancy rates had declined from the previous quarter to eliminate those markets that are showing real improvement. Using a six-month average of year-over-year declines in asking price from Trulia.com, we excluded metro regions where asking prices had shown a trend of increasing in the past six months. Finally, we excluded any remaining markets with positive housing data. These data sets included: negative equity and home price declines from Zillow.com, foreclosure rates from Trulia.com, home price forecasts from Fiserv and time on market and real estate search popularity from Realtor.com.
These are America”s sickest housing markets.