Where are the Best Land Values?

All of the best bargains were found in Louisiana and Texas with Dallas being the most undervalued big city, by 30%, according to CNNMoney.com.

But the PMI study takes a longer view, predicting where home prices will be in 24 months. The insurer's new risk assessment warns that there is almost a 100 percent chance that home prices in markets including Riverside, Calif., and Orlando and Fort Lauderdale, Fla., will be lower in two years.

Big declines are also likely in many other Florida, California and Nevada markets. “This down cycle in housing is very different from those in the past,” said PMI spokesman Nate Purpura. “Typically, employment tanks and foreclosures follow.

In this cycle, the foreclosures came first, then the unemployment, and now we're hitting a second wave of foreclosures brought on by the unemployment,” he said. “It's essentially a double-whammy in the housing market, and we're likely still somewhere in the midpoint.”

But unless the current crisis causes a radical reduction in the number of new households, we are going to keep on building. Much of America’s new housing is provided in the four fastest-growing metropolitan areas: Atlanta, Dallas, Houston and Phoenix.

We would have truly found our way to the 1930s if construction in all of those places dropped essentially to zero. As long as we are building in those places, then construction costs in those areas provide a lower bound on where housing prices will land, since builders will still need to cover their costs.

This reasoning suggests that we should expect prices in Phoenix and Miami to land somewhere closer to construction costs in those areas, and we should expect prices in Dallas and Houston to stay relatively steady, since these places more or less skipped the recent boom.