“AFFORDABILITY” AND “APPRECIATION” may be listed near each other in the dictionary, but they don't co-exist in many markets. Many of the markets considered most affordable are also those where home-price appreciation—and the economy supporting it—has stalled.

Consider Ohio: According to the NAHB's Housing Opportunity Index, a measure of the percentage of homes sold that are affordable to families earning an area's median income, Ohio was the most affordable state in 2004, with nine markets among the nation's 25 most affordable. But home prices there appreciated just 3.91 percent between the fourth quarters of 2003 and 2004, as tracked by the Office of Federal Housing Enterprise Oversight (OFHEO). That figure contrasts sharply with the national average of 11.17 percent.

“The issues that impact our business the most are interest rates, job growth, and consumer confidence,” says Phillip Creek, senior vice president and CFO for Columbus, Ohio-based M/I Homes. “Affordability is important, but people need a job or to feel good about their future to buy big ticket items.”

Those factors have hit M/I's bottom line in Ohio and Indiana, where the company's new contracts for the first quarter of 2005 were down 26 percent against the first quarter of 2004; home deliveries fell 28 percent.

There's plenty of good news for M/I, though. In Florida and the Mid-Atlantic—where the company is concentrating on growth—deliveries in the first quarter rose 11 percent and 58 percent, respectively. What's more, the company's nationwide average sales price hit $305,000, up from $271,000 a year earlier.

Despite the ongoing economic challenges in upstate New York—shuttered manufacturing plants and a declining population base—Joseph McIvor, executive vice president of the Buffalo-Niagara Builders Association, sees potential for a bright future. The NAHB ranked the area as the most affordable housing market among cities with populations of more than 1 million. Cheaper land keeps new homes in Buffalo less expensive than in other regions, and builders there, many of whom compete on price, are succeeding by carving out product niches, says McIvor.

A new report by Zimmerman/Volk, a consulting firm, found that downtown Buffalo can absorb hundreds more units annually than currently planned, which fits with McIvor's view of the demand for loft-style units and high-end apartments in the city. “This is a [great] place for quality of life,” he says. “I see lots of new opportunities.”