Nationally, 2011 will end sideways with marginal improvements in some metrics and marginal deterioration in others compared to 2010.
The reason the national numbers reflect little overall change is because there are few local areas truly on the road to recovery. To assess a market’s recovery, we set four criteria of which at least three must be met: 1) growth in construction jobs; 2) declining unemployment; 3) improvement in new-home sales; 4) and a higher percentage of healthy home sales (including resales and new-home sales) as opposed to distressed home sales.
To receive a recovering grade in each criterion, the market must show a trend of positive improvements in four of the last six months. Conversely, markets would be considered still in decline if they showed negative trends.
Based on a recent assessment of the 100 largest housing markets in the country, five markets are showing signs of recovery, and nine seem to be continuing to decline. That means that 86 percent of the largest housing markets, which together account for two-thirds of new construction in the U.S., were mixed—not improving but not declining either. If we made all four criteria required thresholds, no market would be deemed in recovery or still in decline.
Healthy Sales Will Lead the Way
Of the criteria we used, healthy home sales relative to distressed home sales is likely the best leading indicator for markets beginning to turn toward recovery. If healthy sales don’t outnumber distressed, the remaining criteria can result in misleading short-lived trends that aren’t sustainable. If distressed sales are declining and healthy new-home sales and non-distressed resales are improving, positive price appreciation will follow, as will demand, construction activity, and jobs. The markets listed below are the best bets for seeing recovery first in 2012.