The 10 Most Dollar-Discounted Housing Markets

As the historic real estate bust continues to gut home prices throughout the country, property owners everywhere are scrambling to attract buyers. For some home sellers, that might mean chipping in for closing costs; others might try to sweeten the deal by handing out perks, like a free parking spot. But for many homeowners, the most efficient way to sell a home in a depressed market is to simply drop the listing price. Such price reductions are welcome news for would-be buyers and represent—along with low mortgage rates and the federal first-time home buyer tax credit—a compelling incentive to jump into the market. But while the housing collapse has been a national event, not all markets have been hit with equal force. To pinpoint which housing markets are offering the steepest discounts in total dollar terms, we turned to the real estate search engine of U.S. News partner Trulia. It examined listing prices of homes for sale in the 50 most populous American cities over the 12 months that ended June 9, 2009, and ranked them by total price reductions in dollars. Based on this research, here are the 10 markets that have seen the greatest dollar drops in combined listing prices.

[See The Top 10 Housing Markets for the Next 10 Years.]

1. Manhattan: Combined listing prices of homes currently on the market in Manhattan have been marked down by more than $1 billion between June 9, 2008, and June 9, 2009, according to Trulia. Home price declines accelerated dramatically in the wake of the collapse of Lehman Brothers in mid-September, says Noah Rosenblatt, vice president at Halstead Property, a New York residential real estate brokerage. "For that period of time, the market was frozen—there were barely any deals," says Rosenblatt, who is also the publisher of UrbanDigs.com, a blog focused on the Manhattan real estate market. "And you find out how desperate somebody is when there are just no bids." The post-Lehman trauma affected the higher end of the market—properties valued at $5 million and higher—most severely, Rosenblatt says. In the early months of this year, when the stock market was tanking, "everyone thought the world was going to end," he says. "It was really Armageddon prices—35 to 40 percent off."

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2. Miami: Listing prices in Miami have dropped more than $257 million over the past year. As the housing boom turned to bust, Miami was one of the most severely affected markets in the country, says Jack McCabe of Florida-based McCabe Research & Consulting. "A lot of that was due to overbuilding of condominium units, especially luxury high-rise condominium units, as well as the high percentage of very toxic, payment option adjustable-rate mortgages which were utilized to make these acquisitions," McCabe says. "On top of that, it is our estimate that in the condominium market, about 70 to 80 percent of the sales were to speculators, not future owner-occupiers." McCabe adds that like New York, the higher end of the Miami market is taking the brunt of the pain amid evaporating demand and scarce financing.

[See 2010 Home Price and Mortgage Rate Outlook: 5 Things to Know]

3. Los Angeles: After home values boomed during the first half of the decade, listing prices in Los Angeles have been slashed by nearly $236 million over the past year. The city's huge supply of foreclosed homes has been a major factor. "Everybody wants a deal on the foreclosure," says Mark Hanson, a managing director who handles real estate and finance research at the Field Check Group. "You are seeing the same exact dynamics [in the L.A. housing market] as you see everywhere else: more loan defaults than total number of homes sold, the majority of the home sales are occurring at the less-than-$300,000 range, over half of the sales are in the distressed market, and the organic buyer—the mom and pop trying to buy and sell homes to each other—is being edged out of the market because they can't sell for what the property is worth."

4. Chicago: Listing prices in Chicago have fallen by more than $212 million over the past year. The city's real estate market has been hammered by a shrinking economy and an eroding labor market, says Jim Merrion, regional director of RE/MAX Northern Illinois. As an example, he points out that "Chicago [is] a metropolitan transportation hub, and a lot of the vehicles being shipped across the country pass through Chicago. So as vehicle sales drop, there is less shipping, crane operators get laid off, and it all cascades."