America's 10 Best Undervalued Places to Live

While the national housing bust has devastated property values, it has also created some outstanding bargain opportunities for would-be home buyers—if you know where to look. During the first half of the decade, easy credit and speculative fervor sent home prices in certain states—Florida, California, Nevada—scorching to phenomenal heights. But nearly three years into a real estate crash that's dragged home prices down 32 percent from their 2006 peaks, some of these once wildly overpriced markets present today's real estate shoppers with perhaps their best shot at long-term value. "What we have seen is that those markets that became significantly overvalued [during the housing boom] are right now very undervalued," says Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service.

To pinpoint the nation's most undervalued housing markets, we turned to IHS Global Insight's first-quarter 2009 House Prices in America report, which uses household income, population density, and other data to compare a market's actual value with where it should be on a statistical basis. We then used employment, quality-of-life, and other research to determine America's best undervalued places to live.

[Slide Show: America's 10 Best Undervalued Places to Live.]

Las Vegas. After a dizzying run-up in prices, Sin City has become a cautionary tale for real estate investors everywhere. Since its 2006 peak, Las Vegas home values have plummeted by more than 50 percent. And today—at $77 a square foot—existing homes are actually priced below the cost of building materials, says Steve Bottfeld, the principal of Las Vegas-based Marketing Solutions, which specializes in real estate economics. "That's truly undervalued," he says. Although the market may be depressed today, several factors will support strong housing demand in Las Vegas over the long haul, Bottfeld says. The opening of MGM Mirage's CityCenter, which is expected later this year, will bring new jobs. The city's enviable climate—hot summers and mild winters—and its exciting downtown district will continue to attract residents. And the best-in-class architectural design of area properties will appeal to would-be buyers. "We are on the bottom of prices at this point," Bottfeld says. "There is no question that the residential market in Las Vegas is undervalued." The median single family home price in Las Vegas was $140,000, in the first quarter, which IHS Global Insight considers 41 percent undervalued.

Houston. Unlike other metropolitan areas, Houston has not been hammered by the national housing bust. In fact, real home prices increased nearly 5 percent from the first quarter of 2008 to the first quarter of 2009, according to a Brookings Institution report. But even without a sharp decline in real estate values, projected job and population growth should drive future home price appreciation and create value, says James Gaines, a research economist at the Real Estate Center at Texas A&M University. "The medium- and long-term prospects for Houston are extremely good," he says. The area's low-tax, pro-business climate will lure new employers to Houston and help bolster an already sound local economy anchored by the energy and healthcare sectors, Gaines says. More jobs, of course, mean more residents and greater demand for housing. "[Houston has] good demographic growth, job growth, and a reasonably balanced housing market," he says. The median home price in Houston was $120,000, in the first quarter, which IHS Global Insight considers 37 percent undervalued.

[See our list of America's Best Places to Live 2009.]

Naples, Fla. More than two years of price declines have turned some of Florida's most overpriced communities into buying opportunities, says Jack McCabe of Florida-based McCabe Research & Consulting. "There are definitely opportunities in the marketplace now that make sense," he says. The upscale retirement community of Naples is one such market, McCabe says. With plenty of golf, beaches, and fishing, Naples is an enchanting, sun-drenched spot along Florida's southwest coastline. And after home prices plummeted by nearly 50 percent from the first quarter of 2006 to the first quarter of 2009, the housing market is looking increasingly tempting. IHS Global Insight considers the median home price in Naples—$200,000—to be 33 percent undervalued.