Jacksonville Ranch Club—02/07/2008—Forbes.com
Matt Woolsey, 02.07.08, 6:30 PM ET

Property sharks looking to take advantage of local housing slumps are doing their best to time the market, searching for the precise moment when prices bottom out before taking a bite.

They'd be smart to look for markets where job growth is strong, foreclosures are relatively low and inventory is high. With these factors in place, buyers can still dictate terms of sale and negotiate prices, but aren't as exposed to the economic and lending risk problems that have sunk many markets around the country.

Good places to look? Salt Lake City and Raleigh, N.C., where there are plenty of sellers slashing prices, but not because of a lending meltdown. Complete List: 10 Best Cities For Bargain House-Hunters

Timing a market is tricky business, and prices alone may not be the best way to determine a bargain opportunity.

What you need is a buyers' market, where there is healthy job growth and more houses available than people to buy them. This is not due to foreclosures and economic downturn, but to overbuilding that should balance out in time. These markets "are where you have high inventories but pliable borrowers, with lenders willing to deal," says Anthony Sanders, a professor of finance at Arizona State University.

This is what's happening in Houston. Compared to housing prices in other cities, Houston real estate has always been a bargain, which is part of why the population has expanded so much since 2000. Jobs are being added to the books at the sixth fastest rate of cities measured, and while the city has had more than a few foreclosures, especially in Harris County, it hasn't taken a huge overall hit. Based on inventory levels and construction projects in the works, buyers still have good standing to negotiate price.

Behind The Numbers Our list includes 2006-2007 data on job growth, from the Bureau of Labor statistics; foreclosure data from RealtyTrac, an online database of foreclosures gleaned from multiple listing services, bank-owned properties, bankruptcy records, loan histories, tax liens and lender information; and ZipRealty (nasdaq: ZIPR - news - people ), an online firm that tracks vacancy rates through multiple listing services.

In addition to Houston, Salt Lake City and Raleigh, what we found were soft markets such as Orlando, Fla., Charlotte, N.C., and Jacksonville, Fla., where the damage from risky lending isn't as drastic as other parts of the country, and where employment growth suggests inventory can burn off at a healthy rate.

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Job growth matters, as it's a sign that people are moving to a city and that they're building the roots and wealth to buy a home. On this measure, we used data from the Bureau of Labor Statistics from 2006 to 2007 to calculate which markets are adding people to payrolls. The timing of the data also weeds out any places that saw their job growth explode in past years due heavily to housing or jobs that are now gone, and we excluded any city losing jobs from our list. Excess housing inventory and job loss don't pair well.

But fast job growth coupled with a high foreclosure rate points to a more volatile market, one where economic activity might be slowing, or where prices were untenable from the very beginning.

Kermit Baker, an economist at the Harvard University Joint Center for Housing Studies, says that the equity problems that lead to foreclosures are more often than not "the result of economic conditions in the market as a whole," or "an overheated market."

Neither condition makes for a bargain because there's too much risk involved.

Sellers in subprime troubled markets, for example, might be anxious to sell to save whatever equity they have. Of course, this is more or less like being handed a grenade. If you bought a house in Stockton, right now, where there's one foreclosure for every 31 households, according to RealtyTrac, it's likely that prices will continue to plummet.

You won't be getting a bargain, you'll be buying cheap.

Instead, a bargain buy in an overbuilt market exposes you to less risk and comes with the satisfaction of not profiting at someone else's foreclosure misery.

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