The U.S. housing bust is like a leaking ship.

You may still be able to stay afloat, depending upon where and how bad the holes are.

Will the home market continue to sink or is it just bobbing around waiting for buyers to rescue it? With odds almost favoring a recession because of the housing and mortgage meltdown, it's a good time to examine what makes local markets weak or robust.

There was no single cause that burst the housing bubble. Demographics, economics and mass psychology - what I call demoeconology - merged to create a buying frenzy that was like a meme, a contagious mass information pattern that infects minds with new ideas.

If you understand the dynamics of these powerful forces, you can then begin to see which markets will have more painful price declines and which will experience appreciation.

For now, it's fairly easy to conclude that most home markets are in a funk and won't pull out of it soon.

In August, housing prices posted their biggest drop in almost 40 years and pending sales fell the most on record.

New-home sales declined to a seven-year low.

There are more than 5 million homes sitting unsold.

The behavioral economics of this market are tugging buyers to the sidelines for now, and with the possibility of 2 million more homes coming on the market because of foreclosures, the supply is outpacing demand.

Mass psychology anchored homebuyers to the myth that homes were endlessly appreciating wealth vehicles.

Now the sentiment has shifted.

As Yale University economist Robert Shiller wrote in a recent paper, home buyers fell prey to a "social epidemic" and a "widespread perception that houses are a great investment."

The fallout from the bust will probably impair the economy at large. Shiller found that "residential investment as a percentage of gross domestic product has had a prominent peak before almost every recession since 1950."

In the last quarter of 2005, he notes, home investment rose to 6.3 percent of GDP, "the highest level since 1950."

Will this downturn be like the 15 percent decline between the third quarter of 1989 to the fourth quarter of 1996 or the 42 percent rout in Los Angeles between December 1989 to March 1997? Because real estate is a conglomeration of local markets, it depends what area you are considering.

Consider The 'Brain-Burb'

Location is everything in surveying this moribund market. Orem, in northeastern Utah, is part of a population belt that runs from the northern border of the state down to the southern end of the Salt Lake City area.

Many of the newer residents have come from California or are employed in technology jobs. There are three colleges in the area. As such, Orem qualifies to be called a "brain-burb" for its reliance upon jobs in innovative knowledge industries.

Orem placed second on the list of fastest-appreciating areas in the United States through June 30, where home prices rose 18 percent in the past year, according to the Office of Federal Housing Enterprise Oversight, the regulator of mortgage giants Freddie Mac and Fannie Mae.

What makes Orem attractive is that it's a bargain relative to its more-glamorous brain-burb to the southwest - San Jose, Calif. - nestled in Silicon Valley. The median home price in the Utah city was $257,000 through the second quarter, compared with San Jose, where the mid-point exceeds $520,000.

Demographically, Orem is a relatively young and dynamic community: More than 35 percent of its residents are younger than 18. Its youth, coupled with population and job growth, bodes well.

Fort Pierce's Plight

Although dissimilar in many ways, you also need to consider Fort Pierce. As a retirement area on the Atlantic, 17 percent of its population is older than 65, reflecting Florida's demographic profile closely. Like Orem, Fort Pierce's housing was bargain-priced compared with markets in the Northeast. Median values were about $63,000 in 2000, but were as high as $225,000 through August.

To get an idea of how overpriced a market may be, you need to compare it with some benchmarks. Until the recent decline, the Sunshine State had been well ahead of the pack in terms of price appreciation, up more than 95 percent over the past five years through June 30. The U.S. average over the same period was almost half that at about 51 percent, the federal housing oversight office said. A potent mixture of demographics, population growth and speculation fueled that.

Now six of the 20 worst markets in the second-quarter ranking are in Florida, and all of them are located in desirable areas on the coasts, said the federal housing oversight office. Fort Pierce is feeling the pullback with a 21 percent drop in its condo market.

The most-important truth is that buyer sentiment, rising population, demographic changes and supply/demand ratios all need to be weighed when you try to divine which housing markets are headed for more pain and which may be good investments.

Will the markets that are benefiting from demoeconology continue to grow if the United States enters a recession? Probably not, unless they continue to expand their labor pool, find new buyers or see an influx of brain-burb residents or retirees.

Markets glutted with housing may sink further. Like too much water in a ship, excess inventory doesn't contribute to buoyancy.