It's a question that's relevant to investors in just about any once-hot market that's gone from boom to bust: Have prices finally bottomed out? Or could they be poised for still further declines?

In the Miami-South Dade area of Florida -- ground zero for the worst boom and bust cycle -- prices have actually increased for the third straight month, according to the Case-Shiller Home Price Index.

Pending sales contracts are up, according to the Florida Association of Realtors, and the entire South Florida listed inventory has dropped from 108,000 unsold units in November of 2008 to 70,000 condos, townhouses and single family houses as the end of October 2009, according to realty consulting firm CondoVultures.

Looking at these numbers, you might say: Conditions in one of the most overbuilt local real estate markets in the U.S. are on the upswing.

And some investors agree. One bulk condo buyer reportedly has marked up prices by $300 a square foot more than he paid for his units just months ago. Sounds like the bottom is over.

But there's an alternative view taking shape among some investors: The supposed "bottom" may be nothing more than a temporary plateau, they say, with more declines ahead.

Why? For the same reason that Dr. Laurie Goodman, economist and senior managing director of research for Wall Street's Amherst Securities thinks lots of boot-to-bust metropolitan areas will see price declines in the months ahead: There is a massive 7 million unit "shadow inventory" of delinquent and distressed properties in banks' foreclosure pipelines that haven't been put on the market and haven't yet affected prices.

For instance, in South Florida, lenders expect to take a total of 29,000 units into REO by the end of the year, up 9 percent over 2008, and almost triple the repossessions in 2007, according to Condo Vultures.

When these are finally listed, they're going to be a wet blanket, and depress prices. Goodman forecasts price declines of another 8 to 10 percent in the coming months, just when the conventional wisdom is that we've already seen the worst.

However, Peter Zalewski, head of CondoVultures, says the key to South Florida pricing in the coming year will be location. Condos near or on the water are selling well to investors and second home buyers from the U.S. and abroad.

Demand is likely to keep their prices stable at least.

But in the inland suburban submarkets, which are less attractive to investors and second home buyers, Zalewski sees definite problems -- and vulnerability to further price declines in 2010.

Published: November 6, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.