Although new-home building isn’t likely to go gangbusters in the next 12 months, the worst seems to be over, according to the Home Building Outlook, a new quarterly report from Hanley Wood Market Intelligence (HWMI)—a division of Builder’s parent company Hanley Wood, LLC—to be announced this week at the International Builders' Show in Orlando, Fla.

While the forecast includes analysis of what macroeconomic data indicate for the national housing market going forward, its emphasis is on local market data. Reports will include analysis of 940 housing markets across the country, as well as a ranking of the 100 largest real estate markets based on how well they are expected to perform for new-home sales and residential construction activity.

Rankings are based on year-over-year growth in HWMI’s new-home sales forecasts and it’s Market Health Index, which is calculated using total home sales relative to a given market’s average from the past 11 years. The higher the home sales ratio, the stronger home sales were.

By testing ratios against macroeconomic variables, HWMI’s analysis found six variables that proved to be strong predictors of home sales over the past 11 years, including employment rates, income data, permit issuance, homeownership rates, and sales forecasts. Each factor is weighted, and all six factors are combined for a local market’s score, for which the maximum possible is 100.

Outlook Rank Metro Statistical Area Predicted 2012 New Home Sales 2011-2012 Change 2011-2012 % Growth Outlook Rating Market Health Rating
1 Oklahoma City, OK 2,755 427 18% 93 88
2 The Villages, FL 956 209 28% 91 88
3 Washington-Arlington-Alexandria, DC-VA-MD-WV 7,954 1,228 18% 89 78
4 Worcester, MA 979 211 28% 88 82
5 Portland-Vancouver-Beaverton, OR-WA 3493 933 36% 87 75
6 Minneapolis-St. Paul-Bloomington, MN-WI 4566 1,315 40% 86 73
7 York-Hanover, PA 832 247 42% 86 78
8 Tulsa, OK 1,934 341 21% 85 74
9 Phoenix-Mesa-Scottsdale, AZ 8,201 1,789 28% 84 69
10 Boston-Cambridge-Quincy, MA-NH 2,975 196 7% 84 75

According to the current report, things are hopeful. January’s Home Building Outlook foresees a 27% spike in multifamily home starts during 2012, followed by a more modest 9% annual increase in single-family starts, for an overall improvement of 14% for residential construction activity this year. And while foreclosures are expected to begin trending up again this year compared to 2011, "we feel that absorption levels have increased enough to mitigate additional pricing pressure from subsequent REO sales," the report said.

"It has been a long, difficult road for home builders and building product manufacturers, but we expect that 2012 should finally bring some reward for their diligence and perseverance," said Jonathan Smoke, executive director of HWMI. "While we recognize that national and global risks still prevail and not all markets are showing signs of housing market stabilization, the healthier local markets will lead the new-construction recovery. … As these local markets start to see new construction rebound, the positive impact on the local economy will begin a virtuous cycle of improving conditions."

In the rankings of local markets, Oklahoma City was named the best overall housing market for 2012, thanks to consistently positive job growth numbers, stable home prices, and low unemployment, among other factors. The city is predicted to register 2,800 new-home sales this year, the vast majority of which are expected to be single-family homes.

Of the 940 local markets tracked, 769 are expected to see improvement in new-home sales this year compared to 2011, with a forecasted average increase among improving markets of 17%.

And while much of the industry is staying cautious when it comes to predictions of a turnaround, Smoke insists that the Home Building Outlook’s predictions are not overly optimistic. "Our forecast tends to be more conservative," Smoke says. At least we have been for the last several years [compared to forecasts from Moody’s Analytics and the National Association of Home Builders], and therefore, we’ve been closer. This is the first of our forecasts that is calling for improvement, but we do still think it’s on the conservative side."

Claire Easley is a senior editor at Builder.

Learn more about markets featured in this article: Phoenix, AZ, Washington, DC, Minneapolis-St. Paul, MN, Greenville, SC.