Promising Gains as Some Markets Drop

"Prices have been falling for four to five years now," says David Stiff, Fiserv's chief economist. "Hopefully the labor market will be making more steady improvements by next year."

Already housing has shown some subtle signs of stabilization. In the first quarter, U.S. single-family home prices rose an average of 2 percent year-on-yearthe first national gain since 2006according to the Fiserv Case-Shiller Indexes. The trend is promising, with the increase driven by homebuyer tax credits and gains in such traditionally strong markets as San Francisco and Washington, D.C. says Fiserv. Still, prices in already battered markets continued to fall: Detroit, Las Vegas, and many Florida markets experienced double-digit drops.

Stiff says he expects to see home prices bounce up and down near their lows for the next two to three years, especially in the markets that experienced the largest price bubbles.

The most robust market in the forecast is Washington State's Bremerton-Silverdale area, a quiet naval community across the Puget Sound from Seattle. Home sales and new construction in the area have slowed in 2010, but Fiserv and Moody's Economy.com expect prices there to shoot up by a total of 44.7 percent over the next four years9.7 percent annuallythe highest forecast among 384 metropolitan statistical areas surveyed nationwide. Price levels have fallen about 21 percent from 2007 peak levels, according to the Fiserv Case-Shiller Indexes.

One factor setting Bremerton-Silverdale apart has been a stronger economy than the rest of the U.S., says Stiff. The unemployment rate in the area is 7.2 percent, compared to 9.5 percent nationally, according to June data from the U.S. Bureau of Labor Statistics. Bremerton's military demographic has helped to sustain employment. The Naval Base Kitsap and the Puget Sound Naval Shipyard provide numerous local jobs, says Ken LeMay, a real estate broker in Kitsap County, which includes the Bremerton-Silverdale area.

Stiff adds that while the area has a large number of foreclosure and pre-foreclosure homes, the market is less dominated by distressed sales than many other markets. In May, foreclosure resales made up about 12 percent of sales in Bremerton, compared to 19 percent in the U.S. as a whole, according to Zillow.com.