What can you say about the fickle economic forces that drive the home building industry? Markets that were among the healthiest six months ago have lost favor, due to weakness in the oil and gas sector of the economy. They've been replaced in some cases by unexpected markets that have worked through job losses and foreclosures to reach a much brighter place.
Twice annually, Builder works with Hanley Wood Market Intelligence to compile a list of the healthiest housing markets in the United States, based on forward projections for the metrics that drive housing production--jobs, price appreciation, population growth, and income growth. The projections come from Moody's Economy.com.
Earlier this year, markets in Texas and the Carolinas dominated the list looking at 2011 market-level forecasts, thanks to growth in the oil economy in the case of Texas, and strong population growth in the case of the Carolinas. Both regions also had on their side a recovery in home prices as they worked through foreclosure issues.
Economic conditions in the oil patch aren't quite as favorable today. And some bloom has come off the rose in the Carolinas, where home prices in some markets have double-dipped. As a result, our forward-looking view of the 20 healthiest markets is a little different today.
A lot has happened in the housing market since we last compiled this list in February. We had a double-dip in home prices. Only a small improvement in employment occurred on a national basis. And the long-vaunted housing recovery, which most housing economists pegged for late this year, hasn't materialized.
Rising home prices, job gains, and improvement in median incomes will drive the healthiest markets over the next year and a half. Moody's projects that permit activity may double in some of the very hottest of these markets, as the long-awaited housing recovery takes hold.
Markets that benefit from military spending, or major universities, once again crowd the top of our list. Some markets hit the trifecta with military bases, big universities, and strong private sector employment. But several of the state capitals that appeared on previous versions of the list have dropped to the bottom due to fiscal problems that resulted in layoffs.
Here, without further ado, are the 20 healthiest housing markets based on forecasts through 2012. Though permits weren't used to produce the market health calculations, we've included forecasts for total housing permits in 2011 and 2012 to give you a sense of how big the market is and how much it's expected to grow over the next 18 months.
20: Greeley, Colo.
Health Index: 72
2010 Population Forecast: 252,825
2011 Total Building Permit Forecast: 1,532
2012 Total Building Permit Forecast: 2,510
The forces lifting the housing market along Colorado's Front Range are spilling into Greeley, located about an hour's drive northwest of Denver. Home prices here never got out of control during the housing boom and reset early in the housing recession. Also, the region dealt early and effectively with its foreclosure situation.
Now, positive economic forces are taking hold along Colorado's Front Range. In fact, all the main drivers of new home construction, home prices, jobs, population, and incomes, are expected to turn solidly positive in Greeley next year.
Home to Northern Colorado University and the North Colorado Medical Center, Greeley is projected to have some of the strongest population growth (1.8%) in the country. With a median home price of about $140,000 this summer, Greeley is an affordable alternative to Denver. A strengthening local economy will lift the median income here by 4.2%.
Visit our Local Markets page for Greeley to see more data and analysis.
19. Houston-Sugar Land-Baytown, Texas
Health Index: 72.1
2011 Population Forecast: 6,084,200
2011 Total Building Permit Forecast: 19,613
2012 Total Building Permit Forecast: 25,746
Houston may have dropped from the very top of our list, but it remains a much better place to build homes than most cities. One reason is that, with more than 25,000 permits expected to be pulled next year, there's more opportunity here than in any other market in the country.
Median home prices, which held at about $148,000 through the housing recession, are expected to rise 1.9% next year based on continued growth in population and employment. Houston continues to add about 2% to its population every year, about double the national average. New residents are drawn by the prospect of jobs in energy and manufacturing in particular.
Visit our Local Markets page for Houston to see more data and analysis.
18: Austin-Round Rock, Texas
Health Index: 72.2
2011 Population Forecast: 1,828,700
2011 Total Building Permit Forecast: 5,537
2012 Total Building Permit Forecast: 5,628
Austin is no longer the strongest housing market in the country, but it's still plenty healthy. Home prices have been stable in Austin for several years; they are expected to rise less than 1% next year. Employment growth will be among the strongest on the list as a diverse economy continues to attract new businesses.
The unemployment rate fell below 7% earlier this year as area startup firms began hiring. Thanks to a decade of strong population growth, Austin is now the 15th largest city in the nation. Building permit activity rose 38% in the first half of the year, led by a big surge in multifamily activity, but it is expected to finish the year close to where it started.
Austin is such an attractive place to live that home prices rose through the housing recession. They are projected to rise slightly this year and next now that foreclosures are receding. RealtyTrac reports that foreclosure filings are down 47% from a year ago. They have declined for each of the last seven months.
Visit our Local Markets page for Austin to see more data and analysis.
17: Kennewick-Richland-Pasco, Wash.
Health Index: 73.1
2011 Population Forecast: 253,540
2011 Total Building Permit Forecast: 1,244
2012 Total Building Permit Forecast: 1,099
The Tri-City region, located in the southeastern part of Washington, is a center for nuclear energy research. Home to the Hanford nuclear site, Richland's major employers include Bechtel, the Battelle Memorial Institute, and Lockheed Martin.
The lack of new homes coming on the market, combined with a paucity of foreclosures, has helped keep the housing market strong. Home prices are expected to rise a robust 3.8% over the next year as the population grows and unemployment declines.
Local real estate agents estimate that there was only four a half months of housing inventory for sale this summer, including only a handful of foreclosures. Inventory constraints have kept home prices firm in the Richland area over the last three years.
Visit our Local Markets page for Kennewick to see more data and analysis.
16: Lexington-Fayette, Ky.
Health Index: 73.4
2010 Population Forecast: 472,099
2011 Total Building Permit Forecast: 1,152
2012 Total Building Permit Forecast: 1,663
Lexington, the second largest city in Kentucky, avoided many of the problems of the housing recession. Home prices never got too high during the housing boom and remained stable through the housing recession. The median price of an existing home was about $153,000 this summer, according to Trulia.
Now things are looking up. Home prices are expected to rise slightly (1.3%) next year. And the home to the University of Kentucky and the country's first urban growth boundary, enacted in 1958, may witness a 50% increase in building permit activity.
An abundance of government, technology, and educational jobs has helped keep the local economy relatively strong. Headquarters of Lexmark International, the public printer and imaging company, Lexington is projected to have a 3.5% increase in median incomes next year, coupled with a 2.7% increase in employment.
Visit our Local Markets page for Lexington to see more data and analysis.