Greenstreet Advisors' Panel on Real Estate Markets

There is a good discussion at http://www.greenstreetadvisors.com/RE_portfolio.html.

The key takeaway is that one can be bullish on Texas and Arizona as economies without being bullish on their real estate markets. Because there places have few physical or legal restrictions on development, it is just about impossible to get real land price appreciation. The reason--as soon as real estate prices rise beyond construction costs, developers will build until prices are bid back down again.

Moreover, cities in Texas and Arizona generally have flat density gradients. They were built around the automobile; as such, no one part of Phoenix or Dallas is generally any more valuable than another. There are few exceptions--the Park Cities, two small towns that are surrounded Dallas, have exceptional school and can't expand, so the value of their schools gets capitalized into land prices. And Scottsdale's natural location makes it sufficiently unusual to get a price premium. But by and large, one subdivision in most sun-belt cities is pretty much like another, and so in the absence of constraints, the opportunity for price appreciation is limited.