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In Las Vegas, median home prices have fallen 50 percent from their peak. The area was one of several markets where speculation was rampant during the housing boom.
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updated 4/18/2010 12:31:49 PM ET 2010-04-18T16:31:49

Miami boasts a popular South Beach club scene, Art Deco Architecture, and perhaps the best Cuban food in the country. But residents don't have much else to celebrate.

More than three years after the economy started its downward slide, the Miami metro area, like a handful of Sun Belt cities, still hasn't begun to recover. Median home prices in Miami have fallen 38 percent since its market peaked in the second quarter of 2007; the city's 11 percent unemployment rate is above the national average and has grown more than most of the 40 cities we surveyed.

Cities in the "Sand States" of Florida, California, Arizona and Nevada, where overbuilding was rampant, are also in trouble, claiming nine of the top 10 spots in our list of cities in free fall. In Las Vegas, Riverside, Calif., and Phoenix, median home prices have fallen 50 percent, 44 percent and 37 percent from their respective peaks. Jobs are vanishing. Though country-wide, employers added 162,00 jobs last month, Riverside gained 13 percent fewer jobs in February 2010 (the latest numbers available by metro) than it did the same month three years earlier. Tampa, Fla., saw a 10 percent drop, and Los Angeles added 9 percent fewer jobs over the same time period.

These cities are also slow to absorb their glut of unsold foreclosed homes, keeping recovery at bay.

"These were highly speculative housing markets," says Jonathan Miller, president of Miller Samuel, a Manhattan-based real estate appraisal firm. "In the markets that have unloaded a lot of foreclosed housing stock there's still a lot more coming."

To find the country’s cities in free fall, we rated its 40 largest Metropolitan Statistical Areas on six metrics.

We ranked each MSA on the percent its median home price has fallen since its individual peak, using data provided by Local Market Monitor, a housing market data tracker. To get an estimate for the number of new homes being built, we used data from the U.S. Census Bureau, which tracks how many building permits are issued. Roughly 98 percent of these permits become new home starts. We looked at the percent change in new building permits between February 2007 and February 2010.

We also wanted to know how many people were moving in and out of these metros, since a growing population buoys a local economy. We used the Census Bureau's most recent population estimates to rank each metro on its net population change between July 2006 and July 2009. To judge each city's productivity we also ranked each metro on its per capita gross domestic product in 2008, the most recent year available, using data from Moody's Economy.com. Finally, we ranked the metros on the percent change in unemployment between January 2007 and January 2010 and the number of jobs they added between February 2007 and February 2010, with data from the Bureau of Labor Statistics. We averaged these rankings to arrive at a final score.

Florida cities dominate our list, with Tampa, Orlando and Jacksonville joining Miami. Florida's real estate market keeps falling even as some herald the start of a rebound. The state's comparatively sluggish foreclosure process keeps those homes from getting easily flushed out of the market. Because every foreclosure must be approved by a judge, the procedure takes a minimum of five months to complete.

"In states with complex foreclosure laws, the recovery is clearly being delayed," says Mike Simonsen, CEO of Altos Research, a Mountain View, Calif.-based real estate research firm, who adds that lengthy foreclosures may be driving away real estate investors in these cities.

Picturesque Providence, R.I., is the only New England metro on our list. Economically, it's struggling far more than other cities in the region. Although Providence saw a slower three-year increase in unemployment than some other major metros, it still has a high unemployment rate, at 14 percent. The city also added 9 percent fewer jobs in 2010 than three years earlier. Workers are getting the message and leaving town. Providence is the only city in our top 10 to see a net loss in population.

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California cities are struggling too. Riverside, Los Angeles and Sacramento are suffering because of the knocks they took after their inflated housing markets began to plummet. Unemployment in the City of Angels has nearly tripled in three years, to 12 percent. Riverside's unemployment has also ballooned, to 15 percent. Meanwhile Sacramento saw a 75 percent drop in new building permits. These are troubling signs for Cali metros, but not surprising. The end of the state's home-price climb triggered more than just a housing slump.

"In California, so many jobs were concentrated in construction," says Michael Fratantoni, vice president of research at the Mortgage Bankers Association, the professional association for real estate financiers. "Jobs building single family homes wound up not being sustainable, and there were a lot of job losses."

The long-term consequences of the housing crash in these cities are still playing out, and new factors that complicate a recovery keep cropping up.

"Places like Phoenix and Riverside may take even longer to recover because people might just pick up and leave to go to places doing better," says Fratantoni. "It may make more sense to leave, rather than wait for jobs to return."

© 2012 Forbes.com

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