5 cities where home prices fell the most in 2012

Patricia Mertz Esswein

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Kiplinger is taking a look at U.S. metro areas (with populations of more than half a million) to find those that suffered the largest percentage decreases in home prices last year. Yahoo! Homes is publishing the top five; for the rest of the dozen that have suffered most, visit Kiplinger.com. You can also see the top five good-news cities where home prices rose the most on Yahoo! Homes.

During the boom and bust years, most of these cities didn't experience the highest highs or lowest lows in home prices. The markets in many of them peaked in 2008 and 2009, two or three years after the national market, and are just now experiencing the last of their price declines as recovery begins.

The percentage decreases are for the year ending Sept. 30, 2012, the most recent period available. Sales, supply and other market data reflect the latest data available from regional associations of Realtors and multiple-listing services. Months' supply is how long it would take to sell everything listed for sale at the current pace of sales -- a market with four to six months' supply is considered balanced between seller and buyer. Unemployment rates are from the Bureau of Labor Statistics, and foreclosure rates are from RealtyTrac. Home prices are from Clear Capital. Distressed sales and negative-equity statistics are from CoreLogic.

5. Scranton/Wilkes-Barre, Pennsylvania

One-year change in home prices: -5.4%
Median home price: $84,750
Change in price since peak: -15.7%
Unemployment rate (national average is 7.7%): 8.9%
Foreclosure rate (national average is 0.40%): 1 in 4,283 (0.02%)

Scranton/Wilkes-Barre, in northeastern Pennsylvania, has the second most elderly population in the country, and the real estate market here is typically slow and steady. But a soft economy and bloated inventory of homes has depressed home sales. In the third quarter of 2012, sales in the metro area rose by only 3% from the year before. But Allan Hetkowski, with the local board of Realtors, says he is guardedly optimistic that the market has turned the corner. Still, he says, tight lending standards are impeding the recovery. If plans for a high-speed train between Scranton and Hoboken, N.J., come to pass, the metro area's affordability could attract younger newcomers. Developers have already converted office buildings in downtown Scranton to apartments for students at a local medical school.

With 11.5 months' supply, the city has a glut of inventory compared with demand, but at least it's down from 14.1 months' supply last year. Sellers receive just 88% of their original list price, on average. That suggests sellers are still overpricing their homes. Although the metro area has had some fallout from subprime and lax lending, the rate of foreclosure is very low. In the third quarter, 10% of all sales were foreclosures.

4. Baton Rouge, Louisiana

One-year change in home prices: -6.6%
Median home price: $133,000
Change in price since peak: -13.3%
Unemployment rate: 6.2%
Foreclosure rate: 1 in every 1,073 households (0.09%)

Except for the bump-up in prices after Hurricane Katrina, the housing market in Louisiana's capital traditionally enjoys slow and steady growth, says local agent Linda Gaspard. Baton Rouge's market peaked in early 2009 and then retreated, largely as a result of the recession.

The market feels brisk, says Gaspard. In October, home sales grew by 24.9%. The supply of homes stands at 6.5 months, so the market is close to balanced. Foreclosures were never a big issue here, and in September they were just 13.6% of all sales.

3. Springfield, Massachusetts

One-year change in home prices: -6.6%
Median home price: $180,000
Change in price since peak: -23.5%
Unemployment rate: 7.5%
Foreclosure rate: 1 in every 771 households (0.13%)

Home sales have steadily increased throughout 2012, a good first step in recovery for Hampden County, in western Massachusetts. "Buyers are like, 'Sellers should be begging me for my lowball offer,' ” says local agent Brian Sears. In October 2012, sales in Hampden County jumped by 31.1%. Inventory dropped by 7%, but it's still a buyers' market, with six months' supply. Only the nicest homes receive multiple offers and sell quickly, he says.

Foreclosures account for just 12.6% of total sales, although almost one-third of homeowners with a mortgage are underwater. That suggests a lot of homeowners are hanging tight and holding out for rising prices. Although the local economy is still treading water, the area is affordable, especially compared with the rest of the state.

2. Columbia, South Carolina

One-year change in home prices: -7.8%
Median home price: $118,000
Change in price since peak: -23.8%
Unemployment rate: 7.4%
Foreclosure rate: 1 in every 786 households (0.13%)

Home sales in the South Carolina capital rose by 29.7% in October 2012. Columbia real estate agent Andy Walker says buyers are returning to the market because they've seen mortgage interest rates rise and then fall to historic lows more than once. "They're afraid to roll the dice another time," he says.

Sellers must contend with 11.1 months' supply of inventory, down from 14.4 months last year. "The months' supply is why our pricing is soft and will continue to be until we clear that stuff," says Walker. Plus, foreclosures account for almost 20% of total sales. Yet sellers received a respectable 94.8% of their original list price.

Walker says investors interested in flipping properties are also dipping their toe in the market now. But long-term investors won't help jack up prices because of the state's property-tax policy, which imposes much higher tax bills on owners of property that they don't occupy. That includes homeowners who would rather rent out their home than sell it, says Walker.

1. Louisville, Kentucky

One-year change in home prices: -10.7%
Median home price: $105,950
Change in price since peak: -26.7%
Unemployment rate: 7.6%
Foreclosure rate: 1 in every 448 households (0.22%)

Louisville is wrapping up a mild bust, having experienced a mild boom. Distressed properties (short sales and foreclosures) are just 10.9% of all sales here, and only 7.4% of homeowners with a mortgage are underwater -- that is, they owe more on the loan than their home is worth. That’s about a third of the national average.

A year ago, Louisville's real estate market was more unsettled and still favored buyers. Now it's more balanced, and properties that sell are of nicer quality. In September, sales in Louisville grew 13% from the year before, and the inventory of homes for sale was about the same as last year. Local agent Paul Ogden says that many homeowners who want to move are renting out their homes in hopes that home prices will bounce back before they sell. Meanwhile, he thinks that younger prospective buyers are skittish and may be holding off after watching longtime homeowners thwarted in their desire to sell their homes at the time or price they wanted.

To see the rest of the dozen cities where home prices dropped most last year, visit Kiplinger.com.