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America's sickest housing markets

Joan C Fahrenthold / ASSOCIATED PRESS

The San Diego Convention Center, with its sail-like roof, is surrounded by the downtown skyline, Embarcadero Park (foreground), the Marriott Marina and San Diego Bay.

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 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 percent 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.

5) Sacramento-Arden-Arcade-Roseville, Calif.

  • Average annual list price decline: -7.2 percent
  • Rental vacancy: 6.8 percent
  • Homeowner vacancy: 2.5 percent

Asking home prices in the Sacramento metro region were down by 4.1 percent from June of this year compared to June of last year. Since they peaked in late 2005, home prices in the Sacramento metro region lost more than half of their value. This 54.7 percent drop is the sixth-largest decline among the country’s large housing markets. More than 2 percent of homeowners were in foreclosure between January and June of this year, the sixth-highest proportion of the 75 metropolitan areas considered. The number of home listings in the metro region has decreased by almost 36 percent since April 2011. In March activists from the region visited President Obama’s Sacramento reelection offices demanding that government sponsored enterprises reduce principals on mortgage loans to reflect the present value of homes in the area.

4) Virginia Beach-Norfolk-Newport News, Va.

  • Average annual list price decline: -3.4 percent
  • Rental vacancy: 6.8 percent
  • Homeowner vacancy: 2.8 percent

The housing market of Virginia’s south shore is still suffering from the recession -- the average drop in list prices for the first six months of this year was 3.4 percent. Median home prices have plummeted almost 20 percent since peaking in 2007, but a disconnect between potential buyer incomes and housing prices in the Virginia Beach area seems to still exist.  The metropolitan area has a median list price that is almost 25 percent higher than the national average, while median incomes there are only about 13 percent higher than the national median, according to Fiserv 2011 fourth-quarter estimates. In February, the Virginia Beach Assessor’s Office released a projected fiscal year 2013 assessment of $48.7 billion for the value of all taxable property in the area. This represented a 3.7 percent decline from the previous year, with 79 percent of properties receiving a decreased assessment value.

3) San Diego-Carlsbad-San Marcos, Calif.

  • Average annual list price decline:-3.2 percent
  • Rental vacancy: 8.6 percent
  • Homeowner vacancy: 2.7 percent

With nearly 165,000 home mortgages underwater, the greater San Diego metropolitan area has one of the nation’s highest number of homes in negative equity. Home values in the San Diego region had the 13th-largest drop (37.1 percent) from their peak in 2006 to the first quarter this year of all metropolitan areas reviewed. Underwater homes are a problem, and the region has $20.5 billion in total negative equity, with nearly 10 percent of homes underwater. According to the North County Times, the assessed value of all taxable property in the county fell by 0.14 percent to $395.1 billion in 2011.

2) Toledo, Ohio

  • Average annual list price decline: -6.8 percent
  • Rental vacancy: 6.4 percent
  • Homeowner vacancy: 5.6 percent

From January to June, 2012, Toledo has had some of the sharpest declines in housing list prices. Between January 2011 and January of this year, for example, asking prices fell 11.7 percent. Between the fourth quarter of 2011 and the fourth quarter of this year, Fiserv project that median home value in the region will fall by nearly 3 percent, which would be one of the largest declines among large metro regions in the U.S. Toledo has the single highest homeowner vacancy rate among largest metro areas, with a rate of 5.6 percent in the first quarter 2012. In the Toledo metropolitan area, 37.5 percent of homeowners with mortgages are in negative equity.

1) Riverside-San Bernardino-Ontario, Calif.

  • Average annual list price decline: -1.8 percent
  • Rental vacancy: 9.4 percent
  • Homeowner vacancy: 4.4 percent

Riverside is the third California metropolitan area suffering from a sick housing market. In this region, homeowners paying a mortgage have $41.5 billion in negative equity, the fifth-highest amount in the nation. Many of these homes are under water because median home prices plunged by 55.6 percent from their peak in 2006. The metro had an annual unemployment rate of 14.3 percent in 2010, the highest among the largest cities in the country (it was 11.8 percent in May 2012), and 12.3 percent of homeowners with a mortgage are 90 or more days delinquent on their payments -- the ninth-highest rate. According to Southern California's City News Service, the assessed value of all taxable property in the county is estimated to be $204.8 billion for the 2012-2013 fiscal year, a $300 million decline from the $205.1 billion assessment in the previous fiscal year. While the decrease is lower than previous years, it means things have yet to improve.