The average home price is forecast to plummet over the next two years. But these 7 cities are predicted to post gains.

Number 1: San Francisco

The San Francisco metro area has seen its home values drop by a quarter, and the city still has some pain to work through. The city’s median home price is expected fall another 8.3% by June 2010.

After that, however, the market there may come roaring back: Fiserv predicts a 14.3% gain between June 2010 and June 2011. Averaged out, that means a 4.8% gain over the next two years.

One reason for the sharp comeback is that much of the area’s excess inventory will have been sold. It’s already dropped by nearly in half over the past year.

The recovery will be delayed, though, as the area — particularly Oakland and the East Bay — works through its foreclosure problems. During the first six months of 2009, one of every 52 homes had at least one foreclosure filing.

The good news, according to Mark Fleming, chief economist for First American CoreLogic, is that core city neighborhoods don’t have nearly as many foreclosures as those out on the fringe. The steady demand in those communities will serve as a base as other neighborhoods rebuild.

 

Number 6: Oakland

Looming over Oakland’s metro area is the exotic mortgage, such as option ARMs, which will start to reset to higher rates over the next few months. It’s feared that could fuel another severe wave of foreclosures.

Still, the foreclosure problem of Oakland pales in comparison with those of inland California cities. Plus, the city also has a lot going for it, including many communities that are “highly sought after by homebuyers,” according to Mark Fleming, chief economist for First American CoreLogic. That should buoy home prices once the economy recovers.

Before that happens, Oakland will have to work through some significant economic problems. Unemployment, at 10.7% in the metro area, exceeds the national average, although it pales in comparison to some of the inland California metro areas. Yuba City, for example, has hit 16.1%, and El Centro is at a whopping 28.7%.
With the prospect of continued job losses, it’s no surprise that Fiserv is predicting an 11.7% drop in home prices by June 2010. After that, however, Fiserv expects Oakland to take off again thanks to its strong and varied businesses, such as health insurer Kaiser Permanente, Clorox and retailer Dreyer’s.

Its position across the Bay from San Francisco and its great educational institutions, led by the University of California, provide a further base for the economy. Fiserv forecasts that home prices will return to double digit growth starting next June and produce gains of 13.7% in the following year. Averaging out the drop and the gain, Fiserv expects a 0.4% rise over the next two years*.

Other cities on the list: Seattle, Pittsburgh, Rochester, Memphis, Birmingham

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