To the 1 million viewers of Bravo’s reality show Flipping Out, Jeff Lewis is the acerbic, demanding, and sometimes petulant face of real estate speculation. In the program’s first two seasons (already in reruns), Lewis turned a hefty profit buying and updating homes to sell in Los Angeles’ toniest neighborhoods. At the start of the year he sold a 1,900-square-foot house to Lost star Dominic Monaghan for $1.6 million.

But as the cameras stopped shooting seven months ago, the housing market went from slowed to stalled, leaving the 38-year-old speculator, as he says, “paralyzed.” Lewis has been mired for months in a dispute over the boundaries of a $2.5 million property. A deal to buy a house fell apart when Countrywide Financial (CFC.) foreclosed on the seller. Until recently, Lewis lived in a 700-square-foot home, tight quarters for an entourage that includes two cats, three dogs, and, during working hours, a housekeeper and two assistants. “These are not great times, and people are suffering,” says Lewis, a self-professed “working millionaire” who has flipped more than 40 homes.

With a Hollywood clientele, Lewis is the glitziest member of the speculator class that swarmed the market during the boom, figuring it could make a fast buck on any property. The rapid-fire purchases of speculators helped spur housing to unsustainable heights, not unlike the way day traders pumped up dot-com stocks during the tech bubble. Now many players have fled. Last year speculators accounted for 40,000 transactions, down from 425,000 in 2005, according to the National Association of Realtors. “Flipping looked like a no-miss (situation),” says former real estate speculator Josh Hohman in San Francisco, who has reinvented himself as an online entrepreneur.

Lewis, known for his healthy ego, doesn’t plan a full-on retreat. With buyers scarce, Lewis is branching out and remodeling other people’s homes. Since doing a $200,000 job for TV producer Andy Lassner, he’s gotten a slew of requests to fix up kitchens and basements. “There are a lot of people who want a Jeff Lewis house,” he says.

Meanwhile, lenders are cracking down on his core business. Lewis says he used to get away with a mere 10% down payment. Now 40% is required. Banks also are demanding that he set aside six months’ worth of mortgage payments, double the amount in boom times. “They’re no longer letting me buy four houses at once,” laments Lewis, who’s thinking of finding investors to help fund purchases.

Reluctantly Lewis is downsizing his ambitions. He says he used to spend as much as $600,000 to spruce up a home with top-of-the line appliances and fixtures. Today it’s closer to $250,000. To cut costs Lewis doesn’t replace windows and refinishes existing kitchen cabinets instead installing new ones.

Ever the optimist, Lewis is searching among the wreckage for deals, betting on an eventual recovery. This summer, Lewis bid $70,000 to take over the mortgage payments on a $2 million apartment. The debt-hobbled owner wants $100,000. (They’re still negotiating.) “I’m not saying we haven’t had setbacks,” says Lewis, leaping from his Mercedes-Benz SUV to check out a building that he hears may be troubled. But “there’s always opportunity in the worst of times.”

The son of an Orange County developer, Lewis has experienced busts before. He bought his first condo after high school in the late 1980s recession; Lewis lost $3,500 when he eventually sold it. He fared better on his next deal and netted $35,000 after remaking the house in the sleek, modern style that has become his trademark. In 1998 Lewis left his day job at a real estate agency to flip full time. “I was hooked,” he says. “I could wake up when I wanted and work when I wanted.”

Lewis ended up a reality TV star by accident. Three years back, his vivacious on-air assistant, Jenni Pulos, a sometimes rapper and comedian, pitched a show about aspiring actors called The Wannabes. The producers passed on the idea but saw potential in her boss’s obsessive-compulsive antics. Lewis has installed a Nanny Cam to spy on his staff and has insisted all water bottles in his refrigerator face the same direction. A devotee of scream therapy, Lewis has pampered his pets with trips to acupuncturists. Bravo is expected to bring back the show next year. But when viewers tune in, they may see Lewis Digging Out.

THE REAL ESTATE market may be in the doldrums, but that doesn’t mean it’s impossible to sell your home. Sellers just need to be savvy and not fall prey to common mistakes. Here are five missteps home sellers should avoid:

1. Asking Too Much

The single biggest mistake folks make is setting their asking price too high. In today’s down market homeowners need to price conservatively or they risk turning off potential buyers, says Michael Corbett, author of “Ready, Set, Sold.”

Figuring out how to set the price is tricky. Gone are the days when you can expect to sell your home for as much as your neighbor did just six months ago, according to the National Association of Realtors. So rather than looking at how much homes in your area sold for six to 12 months ago, compare prices for similar properties currently on the market. If you see a listing for a house that’s sitting unsold for a few months, chances are the owners are asking too much and you’ll want to set your price lower, says Corbett.

Watch our video for more advice on setting the right price.

2. Questioning the First Offer

Too many sellers reject their first offer, even if it’s close to or at full asking price. Holding out for more money is a strategy that rarely works, especially at a time when credit is tight, lending requirements for mortgages are in flux and potential buyers have less purchasing power. (Read our story here for more advice on selling in a cooling market.)

The reality is that in any market a home’s first offer is often its best, says Elaine Clayman, a real estate broker with Brown Harris Stevens. Typically, educated buyers will seize on a property they like — with a competitive bid — as soon as it comes onto the market, she says. Of course, given the glut of houses on the market, sellers should expect to receive some low-ball offers. Just don’t assume that you’ll get better bids the longer you hold out. As Clayman warns, the more time a home sits unsold, the greater chance a seller will have to reduce his price.

3. Failing to Respond to All Offers

What if you get an offer that’s simply too low? Don’t reject it outright. See if you can negotiate. First of all, you can’t blame someone for testing the market — after all, in today’s market, many buyers are confident that they have the upper hand. Secondly, by entering into negotiations with one party, you’ll gain leverage with other potential buyers, says Corbett. Most importantly, it allows you to tell brokers that your property is in play and sends a message that if someone is interested, then he better present a competitive bid quickly.

Just don’t get cocky. During this process, it’s crucial for sellers to set a realistic bottom-line price they’re willing to take, even if it’s several thousand dollars below asking, says Corbett.

Watch our video for more advice on negotiating.

4. Paying for a Home Stager

In a depressed market, it’s more important than ever that your property stands out from the competition. But unless you’re trying to sell a multimillion-dollar mansion, you don’t need to pay a professional to stage your home. There are a number of free or inexpensive things you can do on your own to get your house into show condition. Most importantly, paint the walls. Nothing does more to brighten up a place, says Peter Comitini, a real estate broker with Corcoran Group. Next, he recommends getting rid of all the clutter, excess furniture and family knickknacks. Finally, make all the necessary repairs before your first open house. If a buyer sees a small problem, say, a leaky faucet, he’s likely to wonder about larger issues like the furnace or roof.

Read our story here for more home improvements that pay off. Or watch our video for more techniques on how to stage your home.

5. Picking the Wrong Buyer

Now more than ever, sellers need to select their buyers carefully. As we mentioned earlier, thanks to all the defaults in the subprime market, lenders are tightening their lending practices, making it more difficult for consumers to qualify for mortgages. So it’s critical to find a buyer with a recent prequalification letter (issued no later than four to six weeks ago) for a loan.

Next, watch out for buyers who need to add contingencies to the contract, including a clause stating that the deal won’t close until they sell their own home. A better bet is to look for cash-flush first-time home buyers or someone who has already unloaded his existing house. In a slowing market it’s difficult to estimate how long it could take your buyer to find someone to purchase his dwelling, warns Brown Harris Stevens’ Clayman. And if that property doesn’t go for as much as he expected, that person may no longer be able to afford your agreed-upon price.

Visit our Seller’s Checklist to help you figure out what you need to do before putting your home on the market. For more advice, check out our real estate section.

By Brad Reagan and Elizabeth O’BrienWhen the headlines about the housing market are apocalyptic, the last thing a homeowner wants to do is sell. But a funny thing happened to Jeff and Jennifer Boyd when they put their three-bedroom house in Philadelphia’s Graduate Hospital district on the market this summer: They turned a profit. Just 45 days after the listing went up, a buyer snapped up the property for $555,000-$29,000 more than the Boyds paid in 2006. “We were pretty hesitant, knowing what the market is like,” says Jeff. “But a few weeks later, it was gone.”

Here’s a surefire way to start an argument: Suggest that the housing market has reached bottom. To be sure, the near-term outlook is still grim, and nobody is forecasting a rapid nationwide rebound. But there are signs that the overbuilding and speculative pricing that inflated the bubble are working their way through the system. In October 2005, near the peak of the boom, the median sales price for a U.S. home reached 7.3 times per capita income; by this May it had fallen to 5.7, in line with historical norms. Nationally, the rate of decline in sales is slowing, and in some regions sales numbers have actually perked up. “The indicators are starting to look better,” says Adam York, an economic analyst with Wachovia.

Why the disconnect? For starters, the national sales figures that get so much attention-and remain depressing-are brought down by boom-and-bust markets like Las Vegas, Miami and Phoenix. David Berson, chief economist with mortgage insurance firm The PMI Group, says that if hard-hit states like California, Arizona, Nevada and Florida are taken out of the statistical mix, the picture is much more promising. According to PMI’s “risk index,” which estimates the odds of prices falling in a given market, at least 65 percent of the nation’s 386 metro areas have less than a 10 percent chance of seeing lower prices two years from now. What’s more, the government’s sweeping bailout of the financial sector could boost the housing market by making borthe rowing easier for buyers.

We dug into those numbers as well as other forecasts and analysis to determine which markets are in the best shape for a rebound. We also talked with housing experts to learn which kinds of neighborhoods and suburbs are thriving. Our search led us to 25 metropolitan areas that look particularly promising, and there are more than a few surprises. Here, we profile seven of the best-looking markets; for the full list of 25, see November’s issue of SmartMoney magazine.

Seattle

The Emerald City is that rare major metro area near the coast that is not on a nausea-inducing roller-coaster ride. While home prices in Florida and Southern California are in a free fall, homeowners here are experiencing a gentler landing. Of course, that’s partly because the ride up was not as euphoric-home prices here peaked at 65 percent above January 2003 levels, compared with more than 95 percent in Los Angeles. Thanks to well-paying mega-employers like Microsoft, Amazon.com and Boeing, unemployment remains under 4 percent. That, in turn, has kept median sales prices from falling far. Just as encouraging: Only 11.5 percent of local homeowners who bought within the past five years have negative equity on their property, well below the national average of 29 percent, according to the real estate services firm Zillow. That indicates there won’t be a flood of foreclosures and short sales around the corner.

Among Seattle’s neighborhoods and suburbs, yesteryear’s star performers-affluent areas like the Victorian-studded Queen Anne district or Redmond, home of Microsoft-are beginning to slide back a bit. The most resilient part of the region lies across the Duwamish River from downtown, in West Seattle. The small community is directly accessible by only one bridge. That can lead to traffic snarls, but many residents simply bike 20 minutes to jobs downtown. On weekends the relative seclusion means the 2.5-mile Alki Beach promenade along Elliot Bay doesn’t get too crowded. As long as people like great views of water, mountains and city skylines, “those homes will always maintain their value,” says local broker Febe Cude. Dave and Alison Keith recently sold their two-bedroom townhome in West Seattle for $289,000, up more than 25 percent from their purchase price four years ago. They plowed that windfall into a home in the same neighborhood with twice the living space and a fenced-in yard, for $429,000. “You’re always nervous, but I feel like things are holding up well here,” Alison says.

Des Moines

The specter of a prior real estate bubble helped Iowa avoid the current bust. After an agricultural debt crisis in the 1980s, when many farmers found themselves owing much more than the value of their land, Iowa began an aggressive push to diversify its economy. Many of the resulting development subsidies have contributed to a thriving region around Des Moines, the capital. Major insurance and financial-services companies call Des Moines home, including the Principal Financial Group. The media company Meredith Corporation, publisher of Ladies’ Home Journal and Better Homes and Gardens, also maintains its headquarters in the city. Young people flocking to jobs here from other parts of Iowa have helped keep housing demand steady. But homebuyers in these high-paying, white-collar jobs don’t need to stretch much to afford the metro area’s median home price of $156,600.

Though it’s undergone a slight slowdown this year, Des Moines’s real estate market never crashed, in part because it didn’t experience much of a run-up. “Nobody here was flipping houses,” says David Swenson, an economist with Iowa State University.

The suburb of West Des Moines is a particularly strong market, with only six to seven months of inventory, compared with 10 or 11 months in other parts of the metro area. Much of West Des Moines’s housing stock is new construction, both condos and single-family homes, but some historic flavor remains in the Valley Junction neighborhood, a collection of antique shops and other retailers in storefronts dating from the late 19th century. Tom Bernau, 47, moved this spring with his wife and 2-year-old son into a new, five-bedroom home on the third fairway of a private golf course in the city. The couple moved to West Des Moines for its excellent public schools, but before their son starts kindergarten, he’s keeping busy at the country club next door. “We can take our golf cart from our house and go to the pool without going on a city street,” Bernau says.

Raleigh

North Carolina’s capital seems to have gotten a free pass where the housing slump is concerned. Prices have been buoyed by job growth in the Research Triangle, home to dozens of tech firms. Total sales in the first quarter of this year were the fifth highest on record. In some cities, suburbanites stung by gas prices are moving downtown in favor of walkable neighborhoods. But not in Raleigh. “People move here to get away from that type of living,” says local market analyst Stacey Anfindsen, only partly in jest. Although downtown Raleigh has added hundreds of condos and lofts, the real growth has come in suburbs like Cary, Morrisville and Apex, all on the western side of Raleigh, where home prices have risen steadily.

The subdivision of Preston, where prices are up 3.5 percent over last year, reigns as the area’s übersuburb. The northwest Cary neighborhood was bankrolled in the 1990s by Jim Goodnight, founder of software giant SAS, and supersizes the standard suburban amenities: Most lots are at least a quarter-acre, double the size of newer developments, and prices approach $500,000. Parents can choose from a roster of lauded private and public schools. John Minicucci, a technology analyst, moved his family to Preston in May after stints in New York and Vancouver, B.C., and chose the neighborhood in part because it is already built out; it doesn’t run the risk of being flooded with discounted properties because of overbuilding. “Since this area didn’t really experience the boom, it won’t be as susceptible to tanking,” he says. And he’s loving perks like abundant tee times. Like more than 60 percent of Preston residents, Minicucci belongs to the local country club, which hosts 54 holes of championship golf, two tennis facilities and three swimming pools.

Salt Lake City

Salt Lake City supports a diverse economy that could be called “Mormons and more.” The Church of Jesus Christ of Latter-Day Saints remains a large employer here, but the area has also seen steady job gains in health care, education and natural resources. That diversity has offset tough times for local home builders and information technology companies, keeping job growth in positive territory–and putting a safety net under home prices. “There’s a very pro-business, pro-development atmosphere,” says Jeff Thredgold, the economist for regional Zions Bank.

The city’s downtown is a testament to that. The 40-square-block area buzzes with construction projects, many of them related to City Creek Center, a $1.5 billion development that will include retail stores, offices and condos. The downtown area is home to several of Salt Lake City’s hottest residential neighborhoods, along with the Utah Jazz NBA team, outdoor concerts, theater and nightlife (though you may have to join a private club to be served alcohol). Of the seven zip codes in Salt Lake County that saw median prices rise in the second quarter of this year, three were downtown locales.

This fall, Kolaleh Rahimi, 40, moved with her daughter into a historic 1934 home in the Avenues, a popular neighborhood with an eclectic mix of Victorians, bungalows and ranch homes just north of downtown. Rahimi, a pharmacy manager, bikes five minutes downtown for shopping, music festivals and the Saturday farmers’ market. “Whatever you can do in downtown New York these days, you can do in downtown Salt Lake,” she says. But there’s nothing New Yorkish about home prices: Three-bedroom houses in the Avenues sell for around $360,000.

Philadelphia

Philadelphia bashers like to note how the city doesn’t quite keep pace with its northeastern neighbors New York and Boston. When it comes to real estate, that may be a good thing. While prices in the Big Apple and Beantown soared during the bubble years from 2003 to 2006, the City of Brotherly Love charted slow and steady growth. Over the past year, Philadelphia prices have stayed stable, while New York and Boston suffered small declines. And only 7 percent of Philly-area homeowners sold for a loss in the past year, according to Zillow—well below the national average of almost 24 percent.

The region did see some overbuilding, but employers such as pharmaceutical and other health care companies are drawing an influx of newcomers to the suburbs. That’s especially true in Collegeville, a former bedroom community 30 minutes northwest of Philly’s city center that is now home to operations of both Wyeth and GlaxoSmithKline, with mutual fund giant Vanguard just a few towns down the road. So named for the leafy campus of Ursinus College, Collegeville offers multi-acre horse farms and country estates for executive types, with more quaint accommodations in town for tweedy academics. Prudential Fox & Roach, a brokerage with about 4,000 agents in greater Philadelphia, says Collegeville prices are up 16 percent this year. “We are getting a lot of lowball offers, but we are negotiating them up,” says realtor Megan Goldstein. Other Philly suburbs are benefiting from the more traditional migration of young families from the city center. The Boyds, the couple who sold their house in town at a profit, are using the proceeds to buy a four-bedroom, 3,000-square-foot home in a new development in Skippack, Pa.

Birmingham

The University of Alabama at Birmingham anchors this city’s economy, operating an 18,000-student campus and major medical center whose recession-proof demand has helped the local economy weather the current downturn. And even the manufacturing sector is relatively healthy here: About 40 miles outside Birmingham, two auto plants—for Mercedes and Honda—employ workers whose textile jobs moved offshore over the past couple of decades. The city’s low labor and land costs attract businesses to locate here rather than in rival cities elsewhere in the region like Atlanta or Charlotte. Birmingham holds its own in the culture department as well: It boasts two restaurants with chefs nominated for James Beard Foundation Awards, in addition to the Alabama Symphony Orchestra, Opera Birmingham and the Birmingham Museum of Art, whose popular Art on the Rocks programs draw young professionals to sip cosmos amid the Cassatts.

The region’s attractions have helped cushion the impact of the national housing slump. Median home prices in the area that encompasses Birmingham’s Jefferson and three other counties have held up well. “We have avoided the peaks and the valleys,” says Russell Cunningham, president of the Birmingham Regional Chamber of Commerce. The suburb of Mountain Brook has fared particularly well, with a median home price increase of just under 5 percent in the first half of this year. The affluent community’s three villages, most of them laid out in the 1920s and ’30s, form a leafy triangle in the Appalachian foothills. At $535,000, Mountain Brook’s median home price for the first half of 2008 is well above the region’s median of $163,500. And the area lies less than five miles from Birmingham’s downtown business district, so residents are anything but cut off from the city’s amenities.

Denver

Denver’s overall outlook is sunnier than for most western cities because neither inventory nor prices spiraled out of control during the boom. Dinged by a telecom bust earlier in the decade that cost the city 5 percent of its jobs, the local economy wasn’t primed for irrational exuberance. Now with six months’ worth of homes in inventory—the level most experts judge to be roughly in balance—the city offers considerable upside.

In particular, upscale buyers are flocking to Cherry Creek, the tony neighborhood that’s home to Neiman Marcus and the Cherry Creek Arts Festival, one of the country’s top urban arts fairs. Here, prices leaped 16 percent in the past year, according to Integrated Asset Services, an firm specializing in mortgage investments. The area’s popularity illustrates a common theme in U.S. housing markets: established, close-in neighborhoods are often holding up better than suburbs, because they didn’t endure overbuilding and because higher-income owners were less likely to need subprime or adjustable-rate mortgages.

Cherry Creek’s success also highlights the strength of the envy factor. In a recent Coldwell Banker survey of luxury homeowners, 17 percent said they’ve considered moving to get into a certain address or zip code—a reminder that the lure of prestige or good schools moves homes even in a shaky economy. Cherry Creek’s 80206 zip code may be Denver’s ritziest—as seen in the new development North Creek, which features a mix of million-dollar tower condos and brownstones along with a private garden courtyard, à la New York’s Gramercy Park.

By Matt Woolsey, Forbes.com

Ten spots where buyers pay a huge premium to own relative to how much it would cost to rent.

In San Jose, Calif., home to Silicon Valley and some of the highest home values in the country, a bumper sticker reads, “Dear God, one more bubble before I die.”

Chances are the car’s driver lives in Willow Glen, a neighborhood with a small-town feel, Spanish-style single family homes and a main street with sidewalk cafes and locally owned shops. To live there, residents are paying the city’s highest prices relative to what they could pay to rent similar properties in the same area. When you compare mortgage payments to the value of a similar home on the rental market, the price to buy is 26.1 times higher, one of the biggest differences in the country.

Willow Glen is one example of a neighborhood where homeowners are still taking chances on future appreciation–and paying a premium above and beyond their neighbors for that confidence.

In Pictures: America’s Most Overpriced Zip Codes

Still, it’s not as overpriced as New York’s TriBeCa (10013) or Boston’s Chinatown (02111), where demand for high-end condos, new development and proximity to downtowns have pumped up prices.

Behind The Numbers

While real estate markets may be slumping across the country, there are plenty of neighborhoods with similar characteristics. These include downtown Seattle (98104), Mission Hills, San Diego (92103) and Coronado, Phoenix (85006).

To find them, we used data from Hotpads.com, an aggregator of rental listings from brokerages and real estate investment trusts, as well as home sales offerings from multiple listing services and individual brokers.

In a report for Forbes.com, Hotpads.com produced a price-to-earnings spread for each ZIP code in the nation’s 40 largest cities by comparing rental costs with buying costs for similar properties, based on number of bedrooms, location and price per square foot.

Price-to-earnings, or P/E, expresses how much one has to pay for each dollar of return. A neighborhood with a high P/E is overvalued because a buyer is getting a low return based on costs–and paying a huge premium to live in area relative to how much it would cost to rent a similar property there. In TriBeCa, for example, which is No. 1 on our list, the P/E of the measured property is 36.3.

A high P/E can be a sign of an investment being overpriced, but a rock bottom P/E doesn’t mean a bargain. In fact, when you get into the single digits, you’re usually buying a weak investment in an area few are interested in. Detroit’s 48235, around 7 Mile Road, for example, has a P/E of 3. It is inundated with foreclosed properties and houses going for as little as $25,000. It’s hard to put an exact epicenter on Detroit’s real estate crash, but this neighborhood is in contention.

High-Priced Properties

Instead, mini-bubbles are created when buyers invest in robust areas where they expect homes will continue to rise in value. If their gamble pays off and the neighborhood appreciates further, today’s overpriced buyer is tomorrow’s smart investor.

A neighborhood with a very high P/E, like West Hollywood, Calif., where rents trail prices by 30 times, has an expectation of future price increases baked into the cost of buying. It’s not prime West Hollywood, but since it’s on the edge of nicer parts of town and of affluent neighborhood Los Feliz, it’s been attractive to speculators, despite the cost.

But expensive does not mean always mean overpriced.

Limestone townhouses on the Upper East Side of Manhattan, for example, are listed for ever-dizzying prices. Financier J. Christopher Flowers bought a $53 million townhouse on East 75th Street in 2006, and sold a smaller East 73rd Street townhouse undergoing renovation for $23 million in 2007. Expensive? Yes. Overpriced? Not so much. Consider that a five-bedroom mansion on East 74th Street that once belonged to Eleanor Roosevelt is currently listed for $60,000 a month. Prices may be tops in the city, but prime rental prices are peerless as well.

Instead, the country’s most overpriced areas are ZIP codes like San Francisco’s Outer Sunset neighborhood, 94122, which, given its location near the Pacific Ocean and on the south side of Golden Gate Park, was during the most recent boom widely thought to be up-and-coming. Median prices surged from $560,000 in June of 2003 to a peak of $771,000 in March of 2008, based on Trulia.com price data drawn from California’s multiple-listing service.

Sometimes, however, betting on price appreciation doesn’t quite work out, and when markets start to soften, speculative areas are often the first to take a hit.

San Francisco as a whole has declined 6% over the last year, but prices in the Outer Sunset have declined 10%, dropping to $692,000. Based on asking prices and asking rents, though, the market still has a way to fall before reaching equilibrium.

Investors and homeowners in the other nine neighborhoods on our list are likely hoping for immunity from this trend.

In Pictures: America’s Most Overpriced Zip Codes