The Credit Crisis Turns One

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But the worst problems are still concentrated in states such as Arizona, California, Florida, and Nevada, where new construction, speculation, and risky lending practices were rampant. And the wealthy areas seem to be riding out the downturn better than the poor and middle-class areas, where subprime lending was more common.

Tale of Two Zip Codes

BusinessWeek.com asked Mountain View (Calif.)-based Altos Research to look at what has happened to listing prices for homes in 20 large U.S. metropolitan areas since the mortgage crisis began last summer. We selected the best and worst performing ZIP codes in each metro area and discovered that, in almost every case, the listing prices in the strongest performing areas had weathered the year much better than those in the weakest performing ZIP codes.

Many affluent markets are benefiting from the weak dollar, which has attracted bargain hunters from Europe and Canada. Those buyers can also pay cash, so finding a mortgage isn't much of an issue. "The well-financed people are able to go in and buy what they want to buy and they're buying closer in, whereas two years ago they were just settling because there was more competition," said Michael Simonsen, co-founder and CEO of Altos Research.

Consider Davie, Fla., in suburban Fort Lauderdale, where the average asking price dropped 30% to $276,661 in the year ended in July. Drive about an hour north in Palm Beach County and you'll reach Jupiter, a wealthy beach town that is one of the few bright spots in the South Florida real estate market. Median listing prices in Jupiter actually rose 24% from July 2007 to July 2008. The median rose, in part, because the mix of listings now includes a larger share of homes selling for $1.5 million or more.

Kris Heiser, vice-president of Mako Appraisal in Jupiter, said homes on the market for more than $3 million are selling well because buyers in this range aren't affected by the tight credit market and can afford the state's high property taxes. On the other hand, homes selling for $700,000 to $1 million are taking a hit. "We've seen very steady sales, very steady prices," Heiser said. "Jupiter is one of the places that have not been devastated."

"Really Ugly" Market

In Richmond, Calif., an inner suburb of San Francisco where the largest employer is a Chevron (CVX) refinery, asking prices fell 49% to $202,771 in the last year. But less than 20 miles away in Tiburon, one of the wealthiest ZIPs in the nation, asking prices jumped 20% to $2.965 million. Deena Love, a partner at David Levine Appraisal Group, said Richmond was popular during the boom among investors and borrowers with less-than-stellar credit because it was relatively affordable in a region where real estate is spectacularly expensive. The market now is "really ugly," she said. "There's a glut on the market with all the foreclosures."

Michael Bordo, professor of economics at Rutgers University, believes the housing market likely won't recover for another two years. But the housing bill signed by President George W. Bush on July 30 could help. The aid package is designed to shore up Fannie Mae and Freddie Mac (FRE) and allow as many as 400,000 homeowners to avoid foreclosure by refinancing into smaller, fixed-rate, government-backed loans. Bordo said the housing plan will probably help put a floor on the market. But the problems facing lenders will continue, and many regional banks are likely to fail in coming months, he said. One hopes that by its second birthday in August 2009, the housing crisis won't be in its terrible twos.

Click through BusinessWeek.com's slide show to see the ZIP codes in the biggest U.S. metro areas that have performed the best and the worst in terms of property appreciation since August 2007.

Business Exchange related topics:
Credit Crunch
Mortgage Crisis
Housing Market
Bailout
Fed Bailing Out Bear Stearns

Gopal writes about real estate for BusinessWeek.com in New York.