While that's bad news for those renters who hoped to be homeowners by now, it does present a unique opportunity for those interested in adding rental properties to their real estate portfolios.
Are you ready to be a landlord?
According to CNNMoney.com, a combination of low home prices, interest rates near zero and climbing rents makes this an investment opportunity quite unique.
Those who have been displaced by a foreclosure, short sale or bankruptcy won't be able to get a loan for a number of years due to tight credit market restrictions. But they still need somewhere to live, and people that can afford to purchase income property are in the position to supply that housing to them.
Local Market Monitor, a North Carolina-based firm that specializes in forecast real estate prices, suggests these top 10 markets offer higher estimated future returns than the projected national average. Whether you're looking for a large apartment building or a single family home that will bring in rental income, these cities offer great value and potential for growth.
1. Las Vegas, Nevada
Average Home Price (2011): $130,100
As ground zero for foreclosures, Las Vegas is quickly becoming a city of renters. Ingo Winzer, founder of Local Market Monitor, tells CNN that most of the workers in Vegas' massive casino industry are renters.
Projected Home Price (2014): $120,000
Gross Rent (2011): $922
Projected Gross Rent (2014): $966
Considering the home ownership rate is a low 55 percent and the rental market in Sin City remains robust, Winzer forecasts that Las Vegas residential investment properties will eventually yield returns that are 4.7 percent above the national average. Though rental rates are currently 10 percent below what they were in 2007, Winzer expects those rents to start climbing again as more consumers move into the rental market.
And don't discount the potential for short-term, furnished rentals. The town offers much more than casinos: residents and visitors can dine at a variety of restaurants, check out world-class entertainment, relax at exclusive spas and mingle at some of the hottest clubs in the U.S. Some investors may consider purchasing a home near the action and catering to tourists.
If you're looking for a place to relax, there's Hoover Dam, Red Rock Canyon and some of the best state and national parks in the country. (I hiked some of them this past March and they were wonderful!)
Average Home Price (2011): $97,800
Home prices have tumbled nearly 37 percent from their peak in 2000, when the auto industry's massive layoffs sent unemployment rates soaring. And while the industry's modest recovery hasn't done much to quell the falling home prices, rents are expected to rise about 12 percent in the next three years.
Projected Home Price (2014): $94,600
Gross Rent (2011): $681
Projected Gross Rent (2014): $764
As with any investment, there is a caveat. The area's unemployment rate is still high â€" over 11 percent in June, 2011 â€" and the metro area's population has shrunk by about 4 percent since the beginning of the recession. There is less demand for both rental and ownership opportunities due to the bad economy, poor schools and high crime rate. So while rental rates should eventually climb, the time spent waiting for that economic turnaround could be tough.
But the Motor City certainly has its draws â€" it's home to the Motown Historical and Henry Ford Museums, the Heidelberg Project and loads of delicious restaurants. Visitors and residents can take advantage of architectural tours by bike, Segway tours of major landmarks like Comerica Park and personalized rickshaw tours tailored to your interest. With all the things to do in Detroit, it's only a matter of time until things begin to change for the better.
3. Warren, Michigan
Average Home Price (2011): $106,400
The effects of the auto industry struggles have not been lost on Warren (not home to Elizabeth Warren, just in case you were wondering). Like Detroit, housing prices have fallen drastically â€" nearly 35 percent from their peak. The main difference between Warren and Detroit is the amount of risk for investors. While landlords in Detroit wait for the economy to rebound and crime rates to drop, investors interested in purchasing property in Warren have fewer of these issues to contend with.
Projected Home Price (2014): $105,200
Gross Rent (2011): $648
Projected Gross Rent (2014): $736
Many of the homes for rent in Warren are located in well-kept neighborhoods that have better schools and less crime than Detroit. The suburb has a great Park District that plays host to farmers markets, an indoor water park, camps, team sports and more. The population is more stable that Detroit's, making Warren less of a financial risk than its Motor City counterpart.
4. Orlando, Florida
Average Home Price (2011): $165,200
Home to theme parks, theaters, spas and more, Orlando offers a lifestyle a variety of households can enjoy. Despite all its perks, home prices have plummeted a whopping 43 percent since their height in 2006.
Projected Home Price (2014): $166,200
Gross Rent (2011): $980
Projected Gross Rent (2014): $1,148
The city's wealth of tourist attractions should aid the area's economic recovery, but even so Winzer predicts very meager gains in home values over the next three years. Rents, on the other hand, are predicted to climb nearly 17 percent over that same time period.
5. Bakersfield, CA
Average home price (2011): $131,000
Bakersfield historically relied on nearby farmlands to keep the local economy afloat. When that industry folded, real estate development replaced farming as the economic stimulus. After the housing bubble burst, market values dropped nearly 50 percent from their height in 2006.
Projected home price (2014): $128,500
Gross Rent (2011): $736
Projected Gross Rent (2014): $829
Even with the economic downturn, Bakersfield still has plenty to offer potential renters: award-winning museum exhibits, a wide variety of festivals, the Bakersfield Sound museum and more. And with the Sierra-Nevada mountains only a short drive away, residents can enjoy hiking, fishing and top-rated whitewater rafting.
There are things for investors to love about Bakersfield, too. There are still plenty of foreclosures, but unemployment is falling and rents are estimated to climb higher over the next three years. This combination, along with all that Bakersfield has to offer, makes this California city a place many investors will consider purchasing property.
6. Tampa, Florida
Average home price (2011): $152,700
Prices in Tampa have not come up much in the past few years, but they haven't fallen too far, either. The local economy is on the mend â€" the unemployment rate fell a point over the last 12 months â€" and Local Market Monitor expects rents to increase about 12 percent over the next three years.
Projected home price (2014): $147,200
Gross rent (2011): $832
Projected gross rent (2014): $933
The biggest problem with the Tampa housing market is oversaturation. Home prices dropped about 10 percent last year due to an oversupply of investment properties built during the housing boom. This can work to an investor's advantage â€" with low prices, properties can be scooped up below their original cost.
The rental market in Tampa includes many of Florida's retirees, offering investors another market in addition to short-term vacation renters and permanent residents of Tampa. These lessees can enjoy red-hot nightlife, high end dining and three of the countries 10 best beaches. Tampa is also a golfer's paradise, with dozens of pristine courses scattered throughout the city. Residents and visitors alike can enjoy cruises out of the Port of Tampa to locations that include the Caymans and Cozumel.
7. Phoenix, Arizona
Average home price (2011): $155,600
Phoenix is top of mind when you think about the housing crisis. Speculation sent home prices wildly up during the boom, and when the bubble burst those prices fell by nearly 47 percent.
Projected home price (2014): $148,200
Gross rent (2011): $834
Projected gross rent (2014): $936
Foreclosures have also been a huge issue for Phoenix, and many of those who previously owned homes in the area are now renting. The city is a mecca for golf enthusiasts and offers stunning courses with views of the desert and lots of room for outdoor activities including hiking, biking and horseback riding. There's no shortage of shopping, dining and entertainment, making Phoenix an ideal city for both long and short-term renters to enjoy.
The job market is growing again and the population has grown by roughly 8 percent since 2006, Local Market Monitor tells CNN Money. These are positive signs that Phoenix may finally be turning for the better.
8. Ft. Lauderdale, Florida
Average home price (2011): $200,500
Rental rates are going strong despite predicted drops in housing prices over the next three years. According to Local Market Monitor, rents are projected to increase by nearly 10 percent in the same time frame, up from their current rate of nearly $1,100 a month.
Projected home price (2014): $189,200
Gross rent (2011): $1,090
Projected gross rent (2014): $1,195
Ft. Lauderdale provides a variety of entertainment options that cater to many different interests. Head out onto the ocean for a day cruise, hang out and people watch on one of the beautiful beaches or experience world class dining and entertainment downtown. With all these perks, it's hard to believe that renters would be able to resist such a great location.
9. Rochester, New York
Average home price (2011): $150,500
Unemployment in Rochester hovers around 7 percent, a rate that is significantly lower than the national average. Housing prices never dropped as far as those in some other cities on the list, and this stability means home values are expected to increase instead of decrease over the next three years.
Projected home price (2014): $155,500
Gross rent (2011): $825
Projected gross rent (2014): $947
Like many cities in the Northeast, Rochester's industrial infrastructure is being repurposed and turned into retail space, restaurants and housing. This mix of old and new creates a unique environment for residents that offers plenty to do. Cruise, bike or hike the original Erie Canal path, visit great restaurants and shop the quaint villages along the way. There's no shortage of activities for potential renters to enjoy.
10. Stockton, California
Average home price (2011): $157,100
Home values in Stockton have come down a whopping 57 percent from their peak, according to Local Market Monitor. While these numbers are disheartening, single family homes are once again desirable to investors. According to Winzer, the economy in California is improving faster than in areas like Florida. This recovery combined with affordable housing creates an environment that many of investment buyers are willing to take a risk on.
Projected home price (2014): $150,000
Gross rent (2011): $821
Projected gross rent (2014): $915
Investors should expect rental rates to increase but should plan to stay for the long haul â€" Local Market Monitor predicts home prices will fall by another 4 percent, assuring investors who sell too soon will not turn a profit.
But rental property in Stockton may be worth holding on to. The city is surrounded by the Lodi Wine Appellation and has nearly 80 wineries within a short drive's distance (if you're going for the day, we recommend a cab). Residents can enjoy live music, farmer's markets, festivals and tons of outdoor activities right outside their door. All these activities make Stockton a great place to consider purchasing investment property.
Would you purchase rental property in any of these cities?
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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.comand The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.