My Blog

If you were searching for pockets of optimism in the U.S. housing market, where would you look?

Easy guesses would be to avoid Detroit, Cleveland or any cities with domestic automobile plants or troubled manufacturers.

Then there are the foreclosure gulches of Central and Southern California, which include the Modesto, Stockton, Bakersfield, Riverside and Sacramento areas. Those cities will take a long time to recover. Too many homes there were sold at bubble prices to people with dodgy finances.

Most shortlists of regions likely to experience prolonged housing slumps include Las Vegas, Phoenix and South Florida.

You may be able to find some bargains there, although that doesn't mean you will achieve any gains for years to come — unless demand roars back and supplies are diminished.

Not everyone cares about home-price appreciation, though. People still want to live in safe, stable neighborhoods where services abound, schools are decent and they are surrounded by educated, caring neighbors. To many people, that's an intangible and worthwhile investment.

Rates on 30-year fixed-rate mortgages now average about 5 percent, Freddie Mac said in a recent report. Where can you be reasonably assured that your housing investment won't evaporate? Like buying a stock or company, you need to gauge a home's risks, which many buyers neglect to do.

How many foreclosures are in the neighborhood you like? How many nearby homes have been repossessed by banks for cheap resale? Are average home prices steady or falling?

The bottom line: What are the chances your property will depreciate? Most agents can't tell you this, so you have to do the work yourself.

Some of the most durable areas have shown lower volatility because they experienced less bubble appreciation, show fewer foreclosures and have residents with higher average-income levels. A few of these havens might surprise you.

The Connecticut areas of Bridgeport-Stamford, Hartford and New Haven are most resilient, according to HomeSmartreports.com, a San Capistrano, Calif.-based online service that measures "collateral risk," or the chance you will lose money on a property purchase.

Also on the "least-risky" list are Seattle; Boston, Essex County and Worcester, Mass.; Honolulu; Bethesda-Gaithersburg, Md.; Edison, N.J.; New York and Nassau-Suffolk County (Long Island); Albuquerque, N.M.; and El Paso, Texas.

Neighborhood stability is almost always anchored by employment, above-average wealth and education. Highly compensated professionals, managers and business owners with college degrees and large incomes tend to stay in their homes.

The absence of speculators and buyers with adjustable-rate mortgages also makes a difference.

Michael Ela, the president of HomeSmartreports.com, says California, with seven of the 15 riskiest areas in his survey, "was rampant with speculators who got caught in the worst possible vise; many bought at the top of the market with variable-rate loans."

Appreciation chances

Don't mistake preserving home equity and stability with reaping future home gains. The Northeast and Hawaii are already far above the national home-price average.

You might find better overall value and growth opportunities in lower-priced places such as Austin, Dallas, McAllen and San Antonio in Texas; Jackson, Miss.; and Pittsburgh, according to the Center for Economic and Policy Research, a Washington-based organization that regularly rates 100 areas for the prospects of building home equity.

The center says you may be able to reap $60,000 to $90,000 in home-equity appreciation over the next four years in the above-mentioned cities. It also favors Buffalo, Rochester and Syracuse in New York.

Is it time to buy now? Provided you are interested in solid neighborhoods and don't care about finding bargains or timing the market. Mortgage rates are certainly favorable.

No fast cure

The recent Federal Reserve interest-rate cuts and the lower mortgage rates aren't everything. The market may not have hit bottom. A meaningful number of new buyers won't return until they are confident of building wealth through homeownership.

For that to happen, foreclosures must stop dumping more houses on the market at fire-sale prices. To date, government efforts to shut down this poverty mill have been dismal.

A program run by the Housing and Urban Development Department called "Hope for Homeowners" was to halt as many as 400,000 foreclosures, but had received only 312 applications through the end of December.

Far too many didn't qualify because of restrictive rules in this voluntary program.

There's much Congress can do by mandating new rules on modifying loans, allowing refinancing and bankruptcy protection if it wants to halt foreclosures.

It could even let more homeowners stay in their homes as renters.

If Washington is to restore the wealth-building of homeownership, it can't turn a blind eye to the rules of supply and demand, which still linger.