The 5 Hottest and Coolest Real Estate Markets

by Brenda Spiering – RealEstate.com

Remember the old adage about the three most important things when it comes to real estate? “Location, location, location.” It seems it’s still true. While home sales in many parts of the country may be down from what they were a year ago, in some regions they’re still booming.

What are the hottest and coldest real estate markets in the country? According to the February 2007 National Association of REALTORS® home sales report, the percentage change in the median sales price of existing single-family homes between the fourth quarter of 2005 and the fourth quarter of 2006 was as follows:

Metro areas that increased in value the most in 2006
1. Atlantic City, New Jersey +25.9%
2. Salt Lake City, Utah +22.7%
3. Trenton-Ewing, New Jersey +18.9%
4. Beaumont-Port Arthur, Texas +15.1%
5. Salem, Oregon +14.9%

Metro areas that dropped in value the most in 2006
1. Sarasota-Bradenton-Venice, Florida –18%
2. Palm Bay-Melbourne-Titusville, Florida –17%
3. Cape Coral-Fort Myers, Florida –11.7%
4. Springfield, Illinois –10.4%
5. New Orleans-Metairie-Kenner, Louisiana –9.3%

But before you assume the average homeowner in Atlantic City has just made a small fortune and those in Sarasota have just lost their shirt, it’s important to understand a few things. First of all, the National Association of REALTORS® report based its stats on median home prices. While those numbers can be useful in tracking general real estate trends, they can be misleading when used to pinpoint specific peaks and valleys.

Take the two hot New Jersey areas, for example. Jeffrey Otteau, president of the Otteau Valuation Group, a real estate consulting firm in the region, points out that in both Atlantic City and Trenton, a significant number of new upscale townhouses were completed and sold last year. Assuming these units sold for considerably more than the more modest housing they replaced, they would have pushed up the overall median price of homes in the region, even if the price of many homes remained relatively flat.

It’s also fair to assume the sharp drop reported in certain regions of Florida may have been due to the reverse effect. If, during 2006, enough high-end properties with over-inflated values adjusted to more realistic levels, it would have caused the median price of homes in those areas to drop significantly even if, once again, the price of more modest homes remained far more stable.

So, while zeroing in on the hottest and coldest housing regions in the country may be interesting, it doesn’t necessarily give you a picture of the nation’s overall real estate market. The National Association of REALTORS® reports that the percentage change in the national median sales price of existing single-family homes between the fourth quarter of 2005 and the fourth quarter of 2006 was down 2.7 percent: from $225,300 to $219,300.

It’s also useful if you look at housing trends that have occurred over a longer period of time. Even in areas with recent price declines, most home sellers achieved healthy gains on the value of their home over the last five years. National Association of REALTORS® President Pat Vredevoogd Combs says “a broader view of home prices is necessary because housing is a long-term investment.” And while he isn’t predicting a big change in the immediate future, Coombs does expect to see “a gradual rise in sales and home prices that will be good for the overall housing market.”

Published on April 23, 2007