Looking at the Case Shiller numbers for January, here's a down and dirty reaction:
The three worst metropolitan areas in the country to own a house are Charlotte, NC, Portland, OR and Seattle, WA. The four best are Atlanta, GA, Cleveland, OH, Dallas, TX and Denver, CO.
On the eventual level of housing prices, everyone else is free to predict how low they will go.
But the basis for my prediction for those seven markets is as follows:
Those seven cities have experienced relatively mild housing declines to date (all less than 20% at a time when the national average is 30%), so the question is, of the cities that have suffered least so far, which are most likely to get a pass on the national nightmare, and which are most likely to have their worst ahead of them (in other words, which will have relatively less severe house price declines and which will have declines that are delayed, but every bit as severe as those elsewhere in the country?).
When you look at how far back the declines to date have taken price levels in various cities, an interesting bifurcation opens up. In Atlanta, Cleveland, Denver and Dallas, even though price declines have been relatively moderate, housing prices are back to 2000-2001 levels (nationally, price levels have not retreated quite that far). In other words, the bubble has been deflated in those cities as much or more than it has in places like Phoenix, Las Vegas and Tampa (where housing prices have only backed down to 2003-2004 levels). The bubble never developed to the same extent in Atlanta and its peers that it did in Phoenix and such.
By contrast, house prices have also declined 20% or less in Charlotte, Portland and Seattle, but house prices have only backed down to 2005 levels. Assuming those places are as vulnerable as anywhere else to the nationwide correction currently underway, it would appear that it merely late reaching those areas, and that they have a considerable way to fall, if house prices in those cities are to return to levels comparable to those of roughly around the turn of the century. That is, unless there is something that reduces their vulnerability. That doesn't seem particularly likely. Even at the height of the bubble, Portland had a reputation for poor affordability, and, in today's economic circumstances, the dependence of the Charlotte regional economy on the financial services sector has to be worrisome.
Other people can provide a more sophisticated analysis of the national metric. For that, I'm sticking with an unwind, a regression to the norm, an overshoot and then a recovery. Time is the only independent variable and it's going to take time. My little contribution is in noting four good and three bad local markets.