5 Housing Markets With Great Bargains (If You're Really Planning to Stay)

BOSTON ( TheStreet) -- Some U.S. housing markets still offer big bargains even though asking prices have risen 8.3% nationwide over the past year, market tracker Trulia.com says.

"Prices fell so much after the housing bubble burst that we're still in rebound mode," said Jed Kolko, Trulia's chief economist.

Trulia recently analyzed two key housing-market measures -- price-to-income ratio and price-to-rent ratio -- to see how current home values in the 100 largest U.S. cities compare with historic norms.

While the study concluded that nine markets have become overpriced, Trulia found that America's 91 other major cities remain undervalued by as much as 24%.

Trulia's research shows that the Sun Belt and the Midwest's Rust Belt offer many of America's biggest discounts.

Kolko says lots of Sun Belt cities top the list because they "had a big price bubble during the housing boom, followed by a big price decline when the bubble burst."

As for the Rust Belt, the expert says property values have fallen far below market fundamentals because of ongoing hits to the region's manufacturing base. "These places face long-term economic challenges," Kolko says.

Here's a rundown of the five cities Trulia believes offer America's most-undervalued home prices -- way below the 7% average deficit that the study found for the nation's 100 largest metro areas as a whole.

Trulia calculated property values by looking at asking prices for homes listed during April on Trulia.com, coupled with historic readings of the S&P/Case-Shiller Home Price Indices and Federal Housing Finance Agency data. The site then estimated price-to-income and price-to-rent ratios using federal statistics for each metro area.

Fifth-most-undervalued market: Cleveland
How much prices lag fundamentals:
20.5%

Home sellers in the Rock and Roll Hall of Fame's hometown are definitely singing the blues these days -- good news for would-be buyers.

Trulia estimates that Cleveland's home prices, which peaked at 21% above fair value in 2005, have fallen to 20.5% below where fundamentals suggest they should be.

But buyers beware: Kolko doesn't expect a turnaround anytime soon.

"We're not likely to see strong home-price appreciation in the Rust Belt areas in the foreseeable future because they still face big economic challenges," he says.

Still, Kolko says Cleveland consumers who are simply looking for places to live should feel free to jump into the market. That's because Trulia calculates that it's 63% cheaper to buy a Cleveland home than rent one as long as you stay in one place for seven years.

Fourth-most-undervalued market: Akron, Ohio
How much prices lag fundamentals:
20.6%

Located just 40 miles south of Cleveland, Akron has a housing sector that suffers from many of the same problems its counterpart to the north faces.

"The decline of manufacturing has pulled prices down in many Rust Belt markets," Kolko says.

Trulia estimates that Akron home prices have dropped to 20.6% below what market fundamentals justify -- a big reversal from 2005, when valuations peaked at 19% above fair value.

But while long-term economic problems make Akron iffy for investors, Kolko says buying a home there looks like a good option for local consumers. Trulia estimates Rubber City residents can save 56% over seven years by buying properties to live in rather than renting.

Third-most-undervalued market: Palm Bay/Melbourne/Titusville, Fla
How much prices lag fundamentals:
21.6%

Located roughly between Jacksonville and Miami, this Atlantic coastal community saw huge gains during the housing boom -- but equally sharp declines in the bust that followed.

Palm Bay-area home values peaked in 2006 at 75% above what market fundamentals suggested, but have since fallen back to 21.6% below fair value today, according to Trulia.

But even though the region's asking prices rebounded 4.4% over the past year, Kolko doesn't think Palm Bay is out of the glades just yet.

He says much of the Sunshine State has big "shadow inventories" of distressed homes that lenders have yet to foreclose on and put up for sale. "There are still a lot of foreclosures to come in Florida," Kolko says.

Second-most-undervalued market: Detroit
How much prices lag fundamentals:
22.9%

The Motor City's housing sector remains in a major stall.

Trulia says Detroit home prices peaked at 42% above fair value in 2005, but have since reversed gears to hit 22.9% below market-fundamental levels today.

Kolko attributes the downturn to a basic "Rust Belt decline" that might make Motown a bad choice for investors focused on capital gains instead of rental income.

But just as with other Midwest cities on Trulia's list, the pullback makes Detroit housing a good bet for would-be owner/occupants. The site estimates locals who buy homes to live in for seven years will save 70% over what it'd cost to rent.

Most undervalued market: Las Vegas
How much prices lag fundamentals:
24.1%

The Las Vegas housing market's fortunes have risen and fallen in recent years faster than a gambler's pile of chips.

After peaking in 2006 at 70% above market-fundamental levels, Sin City home prices have tumbled to 24.1% less than fair-market value today, according to Trulia's estimates.

That said, a rebound looks like it's in the cards.

Trulia found that asking prices on Vegas homes rose a stunning 28.5% over the past year -- the highest percentage gain among America's 100 largest metro areas.

"We're seeing lots of investor interest and big price increases in Las Vegas," Kolko says. "Prices are still undervalued, but not as much as they were a year ago."

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