(September 24) -- Before terrorists destroyed the twin towers of Manhattan's World Trade Center and gouged a hole in the Pentagon, the residential property sector was the silver lining in an otherwise cloudy economic forecast.

In the wake of the Sept. 11 attacks, however, real estate markets nationwide--not just in the New York City and Washington, D.C., areas--have been widely affected.

Economic forecasting firm Case Shiller Weiss has revised its forecast for national home-price appreciation over the next 12 months down three percentage points to just 2.4 percent. The company downgraded growth projections for all but two of the 20 markets it covers. The downgraded markets include Atlanta, Boston, Chicago, Cleveland, Denver, Detroit, Los Angeles, Miami, Minneapolis, Nashville, New York, Orlando, Philadelphia, Phoenix, Portland, San Diego, San Francisco, and Seattle.

The two exceptions were Hartford, Ct., which was upgraded slightly from 3.7 percent appreciation to 3.8 percent; and, surprisingly enough, Washington, D.C., which is now predicted to see home values rise 4.2 percent instead of earlier projections of 3.6 percent.

Although the attack on the Pentagon will hurt tourism in the nation's capital, the area will counter that decline with increased defense and research spending. In the 18 markets where home appreciation has been revised downward, the question looms of whether the re-emergence of urban living will begin to falter just as a flood of empty-nesters were beginning to show interest in taking up residence near dining and entertainment. "It sours the glamour of living in a big glass box downtown," says CSW partner Robert Shiller.

Source: Wall Street Journal (09/21/01); Fletcher, June; Reed, Danielle