Southern states set to outperform the East Coast: TD Economics

One of the biggest factors will be a surge in home building over the next five to seven years in the Southeast, the report said. States like Florida and Georgia will experience an earlier and perhaps stronger rebound than the Northeast, as the severe foreclosure issues have opened the potential for an "explosive rebound," the report said.

Other northern parts of the East Coast have already started to show a distinctly better price performance nationally than most other parts of the country. While April average prices nationally this year were down 5.4% compared to a year earlier, they were down just 1.3% in the New York-Northern New Jersey-Long Island metro areas and up 0.6% in Washington D.C., according to the National Association of Realtors (NAR).

Conversely, Miami-Fort Worth prices were down 12.4% since last year, and Atlanta prices saw an even greater decline over that period of 18.8%. The foreclosures are having the biggest effect on new starts, however.

"In both states (Georgia and Florida), homebuilders are competing with an extensive supply of existing homes in foreclosure that are selling at remarkable discounts, and leading to large pullbacks in construction," the report said.

Population growth has also slumped, but that will recover with an improved economy and added jobs, said TD Economics.

Investors should realize there's a significant difference between the North and South regions of the East Coast, the report said.

"In the long run, home construction in the Northeast will look much different from the South because Northeast popuªlation growth is slated to slow while it will hold steady in the South," the report said. "This means that in the Northeast home building will become more centered on replacing and improving the existing stock of housing, while in the South, housing starts will be driven by demand for new housing units."

By 2030, states like Connecticut, Maine, Pennsylvania and Rhode Island may have "little need for the housing stock to expand," TD Economics said, as population growth will have slowed by then.

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