Ten Cities Ready To Bounce Back (St. Louis included!!!)

By Paul Kaihla, CNNMoney.com

The horror show of America's residential real estate market just keeps getting scarier, what with the sub-prime mortgage crisis threatening to slash demand for homes while the inventory of unsold properties continues to pile up. It's enough to send any prudent investor fleeing to the relative sanity of, say, the stock market.

Don't. Instead, get ready for the bounce-back. The oldest rule of investing dictates that you buy low and sell high. Real-estate buyers aren't at the gate, however, because most local markets have yet to hit bottom. In fact, most cities won't do so for another year.

But Business 2.0, working with Moody's Economy.com, has unearthed 10 major metropolitan areas that are bucking the national housing trend. By the beginning of next year, these markets should be coming back to life -- and in our exclusive rankings, we've projected the house-price appreciation these cities will enjoy during 2008 and 2009. The gains may seem modest -- they range from about 4 to 7 percent -- but remember, in the midst of the current housing meltdown, any gain at all constitutes a minor miracle.

What our 10 cities have in common is that they're relatively affordable. They missed out on the housing bubble, yet they still enjoy steady employment and income growth. Not surprisingly, five of the 10 are state capitals with hefty public payrolls. Even more telling, with the exception of the three Texas metros ( Austin, Dallas, and Houston), the big national builders didn't make significant incursions into these markets.

"These cities didn't draw in speculators or investment the way the coastal markets did,. says Celia Chen, the Economy.com economist who crunched our numbers." "House prices in these places weren't untethered from the underlying fundamentals." These underappreciated -- but soon-to appreciate -- housing markets offer real opportunities to the savvy investor.

St. Louis
Projected median sales prices for single-family homes:
Q1 2008: $143,920
Q4 2009: $149,710
Growth rate: 4.0 percent

St. Louis's annual per capita income of $36,000 matches the national average, and the metro's economic growth rate closely tracks that of the overall U.S. gross domestic product. Its workforce is light on the kind of high-skilled techies that have made places like Silicon Valley and Raleigh-Durham boom - but then again, the middle of the road is a good place to be during a national housing meltdown. The boom-and-bust fluctuations in hot markets were only felt as ripples here.

Craig Heller, a local developer who owns a company called Loftworks has placed his bets on converting historic buildings and warehouses in the urban core into condos, selling the units at an average of $275,000 a pop. He expects downtown loft prices to increase substantially this decade, thanks to reverse migration from the suburbs.

At the same time, a different brand of gentrification is starting to emerge in outlying towns that have been absorbed by St. Louis's sprawl. Speculators are buying traditional country homes at a discount in enclaves like Glendale, Kirkwood, Sunset Hills, and Webster Groves. They then tear them down and put up McMansions that list for multiples of the property's original sales price.