Aug. 5 (Bloomberg) -- Has an all-clear siren gone off? Is it safe to invest in U.S. homes yet?

While a big-city gauge of U.S. home prices in May showed its first monthly gain in three years and pending home resales rose in June, the storm hasn’t passed. Foreclosures still buffet Arizona, California, Florida, Nevada and areas beset by unemployment.

If you are relocating, buying investment properties or retiring, you may have to move to areas not on your top-10 list in order to gain some home-equity growth.

It is a fallacy to assume that all housing markets are on the mend. There are still about 4 million single-family homes, condominiums and co-ops sitting unsold and foreclosures keep hammering prices in the worst-hit areas.

It takes some research to find which markets were least affected by the bubble, had few subprime mortgages and show stable or growing employment patterns.

That’s a tall order these days, although a few places offer some hope. Which markets suffered the least amount of damage from the housing bust? You have to start with baseline prices going back to 2006.

Richard Florida, a business professor at Toronto University, plotted large U.S. market percentage increases from 2006 through the first quarter of 2009.

Places to Watch

Markets that fell more than the national average include some well-known trouble spots: Cape Coral-Fort Myers, Florida; Akron, Ohio; Lansing, Michigan; and California from Los Angeles to Sacramento, according to Florida’s research.

Then there are the overperformers that largely escaped the U.S. decline in house prices. Austin, Dallas, Houston, Philadelphia and New York weren’t hurt as badly as the underperformers. There are also some surprises such as Cumberland, Maryland, and Binghamton, New York.

How do you avoid trouble if you are buying now? You will first have to consider the compound effect of unemployment, overbuilding and foreclosures in any market you are considering.

As the foreclosure rates in hotspots such as the Southwest, Midwest and California appear to moderate, job losses are forcing above-average defaults in Oregon, Idaho, Utah, Arkansas, Illinois and South Carolina, according to RealtyTrac Inc., an Irvine, California-based service that tracks defaults and provides information.

Migration Trend

It is also helpful to see where large numbers of people were moving before the bust.

A notable migration shift from the most overpriced areas in the West Coast and Northeast to less-expensive ones may continue if the overall economy improves. This is what I discovered when researching my book “The Cul-de-Sac Syndrome” (Bloomberg Press, $24.95).

West Coast residents found greater values in the Rocky Mountain states, fueling growth in Colorado, Montana, Utah and east-central Washington state.

Those who could telecommute or relocate found they could get much more for their money in Ogden, Utah; Wenatchee, Washington; or Boulder, Colorado.

Home prices during the boom in these places were still bargains relative to Silicon Valley or the Seattle suburbs. Northeasterners found they could obtain a higher standard of living in Texas, North Carolina or Atlanta’s suburbs.

Some of the most highly mobile employees migrated to the “brain ‘burbs,” of Denver and Salt Lake City. This trend may continue as the hotbeds for technology innovation such as Boston, Seattle and the San Francisco Bay area stay pricey, although these innovation centers will probably remain desirable as cultural and intellectual capitals.

Bargain Cities

While it will still be relatively expensive to live in New York, Boston, San Francisco, Los Angeles, Seattle and Chicago, these cities will always attract culturally creative people who are educated, entrepreneurial and motivated.

Don’t expect to see much home-price appreciation or even good values in the innovation zones, though.

Bargain-priced cities are typically in the South and include Charlotte and Raleigh-Durham, North Carolina; Lexington, Kentucky; Baton Rouge, Louisiana; Chattanooga, Tennessee; and El Paso, Texas. Southern cities generally offer better values for housing and taxes relative to the coasts and upper Midwest.

Looking for smaller, less-expensive off-the-radar cities with cultural amenities? Then check out Auburn, Alabama; Muncie, Indiana; Greenville, North Carolina; College Station, Texas. Towns with stable institutions such as universities generally offer the best value.

There are no guarantees on home-equity growth anymore. And the most promising cities may not be on anyone’s list for most glamorous places to live. Yet barring a prolonged recession, your risk of losing money on a property investment may be much lower in these places.

(John F. Wasik, author of “The Cul-de-Sac Syndrome,” is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

Last Updated: August 4, 2009 21:00 EDT