While “hardest hit” areas like Phoenix and Las Vegas still dominate media coverage of the housing market doldrums, around the country markets previously considered to be “stable” despite the crash are starting to cave. This “new wave of distress” is probably not surprising to residents of these areas who may have been experiencing low prices, high foreclosure inventories and difficulties selling for some time, but many “outside” analysts who believed that “economically diversified cities” would emerge relatively unscathed are finding themselves to be painfully incorrect[1]. According to a report from the New York Times, last year Seattle home prices declined more than those in Las Vegas, and Atlanta home prices declined more than Phoenix.

“Bubble markets” like Phoenix and Vegas may have fallen harder and faster overall because “builders and banks ran wild.” However, they may be slowing just in time for other markets that appeared to be more stable to start catching up. According to calculations by Zillow, Seattle home prices, for example, could fall as much as an additional 10 percent in the coming year. Government tax credits may actually have prolonged the pain because they artificially stimulated markets and made a recovery appear to be imminent when, in fact, the markets were simply not ready to recover yet. “We went into 2010 feeling gangbusters, thanks to Uncle Sam,” explained Zillow’s chief economist Stan Humphries. “We ended it feeling penniless, with home values tanking.” According to a report by Zillow earlier in the month, 34 percent of Seattle homeowners were underwater on their mortgages at the end of 2010[2].

With mortgage application volumes falling[3] and government-controlled Fannie Mae and Freddie Mac being phased out in the coming months, 2011 looks to be a year of uncertainty for the housing market for many areas instead of the beginning of a recovery. Many experts and real estate investors are adjusting to this change by placing heavier emphasis on a property’s current income potential (e.g. how much rent it brings in each month or how much cash it will generate in short order when it is resold) rather than on its appreciation potential, since no one knows what the future will bring in that regard. How have you adjusted your investing strategies to the new housing market in America?

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[2] http://www.kirotv.com/news/26795616/detail.html

[3] http://www.bloomberg.com/news/2011-02-09/mortgage-applications-in-u-s-fell-last-week-as-costs-rose.html