At this point, it’s clear the subprime contagion won’t be contained in the next year, based on the acceleration of home price drops and foreclosures nationwide. But when the bad vintages of loans finally come off the books, the cities where prices are expected to rebound are largely those with vibrant economies.
“The logic is pretty straightforward,” says Mark Zandi, chief economist at Moody’s Economy.com. “People will spend as much on housing as their income will allow them. House prices are very closely tied to household income over the long run when you look at business cycles.”
This means that recovery is likely in the cards for even the hardest-hit spots. Cities such as Atlanta and Colorado Springs, Colo., may be reeling from high defaults and foreclosures, but from 2007 through 2012 their economies are expected to experience 2% and 1.6% average annual job growth. That means more in-migration and more money in the economy, factors that help businesses grow and profit — and put more money in residents’ pockets.
As local economies grow bigger and more dynamic, land values increase because the value of what can be produced on that land increases. When land prices go up, home values go up.
- By Matt Woolsey, Forbes
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