Fortune - Real Estate Survival Guide

From Fortune via CNN/Money:

Welcome to the dead zone

Real estate survival guide: The great housing bubble has finally started to deflate, and the fall will be harder in some markets than others.

The stories keep piling up. In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials.

The message is clear. Five years of superheated price gains rescued America from stock market collapse, put billions in consumers' pockets, and ignited a building boom that bolstered the nation's economy. (To relive the frenzy, see "Riding the Boom.") But it's over. The great housing bubble has finally started to deflate.

You won't find that news in broad national statistics or the upbeat comments from the real estate industry. Thelatest official figures, for example, show both new and existing home sales rising in March, a mixed bag on prices - and a record number of new homes on the market.


Unmaking the myths

Real estate survival guide: The sudden shift in the nation's housing markets is exploding some long-held beliefs. Here's the conventional wisdom you should ignore.

The sudden shift in the nation's housing markets is exploding some long-held beliefs. The first is that a scarcity of buildable land on the coasts keeps a cap on supply and prevents prices from falling.

But high prices inevitably work their magic, encouraging more people to sell existing homes and sparking new construction. Sure enough, prices are already tumbling in Boston, where a swarm of downtown condos is swelling the number of properties for sale and punishing the price of all housing.

A second myth is that today's big homebuilders learned their lesson in past downturns and now launch projects only when they have firm buyers lined up. But housing starts are still running at near-record levels of some two million units a year.
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A third tenet holds that home values never drop in areas where employment is rising. But today some of the hardest-hit regions rank among the strongest job machines, notably Northern Virginia and San Diego. The reason: Young buyers filling those jobs can't afford the houses for sale. (See a gallery of markets that are due for a fall, and ones that will hold up.)


Who will be hurt most?

During the boom, condos were catnip for would-be tycoons. Now investors are bolting, developers are slashing prices, and unsold units are piling up.

The most troubled sector of the housing market, the one that will fall first and fastest, is the condominium market. Typically cheaper than houses and easier to buy, sell or rent out, condos are catnip for investors.
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Yet even as speculators flee, developers keep throwing up condos at a breakneck pace, in part because if they have already bought the land and poured the foundation, they have no choice but to finish the project.


Hot home markets to cool down...how will your home fare?

According to the latest housing price forecasts from Fiserv Lending Solutions, a provider of mortgage and consumer lending services, Las Vegas real estate will tumble a whopping 8.2 percent in 2006, the largest predicted fall among the 379 metro areas studied.

Fiserv forecasts a significant stagnation in housing prices for the United States in 2006 -- median home prices overall will inch up only 1.5 percent this year. And many metro areas will experience drops, including some of the largest, and most expensive, ones such as New York (down 2.43 percent), Los Angeles (down 3 percent) and Washington (down 1.9 percent).