In the past 12 months, home prices have skyrocketed in some major U.S. cities. In Phoenix, according to real estate information site Trulia, asking home prices increased by 26.9% between November 2011 and November 2012. Of course, that’s after home prices in the area plummeted by more than 50% peak-to-trough. A new report released by Trulia points out that just because home values are rising rapidly in certain area doesn’t mean these market are healthy.
Trulia’s latest report, “2013’s Top 10 Healthiest Housing Markets,” reviews the largest housing markets in the country based on what Trulia identifies as the three fundamental characteristics of a healthy housing market: strong job growth; low, but manageable, vacancy rates; and low foreclosure inventory. These are the 10 best housing markets for 2013.
In an interview with 24/7 Wall St., Trulia’s Chief Economist Jed Kolko explained that while housing markets have increased in the last year, many of the increases are rebounds following big declines in home values. As a result, “markets with the biggest price increases are some of the boom and bust markets,” including Phoenix, Las Vegas, Miami and Detroit. Housing prices in these places increased significantly, year over year.
Employment growth is also an important measure for housing demand. “When people have jobs, they are able to spend more on renting or buying, and they are more likely to buy,” Kolko said. The 10 metro areas projected to be the healthiest in 2013 have among the highest job growth in the U.S. All 10 are within the top 20% for job growth, primarily benefiting from vibrant technology and energy sectors. In Houston, one of best housing markets for 2013, employment grew by 3.6% between October 2011 and October 2012 — the largest job growth of any major metro region.
Having low vacancy rates is also important to the long-term health of these markets. “High vacancy rates hold back price increases, they hold back construction, they hold back the recovery,” Kolko explained. A lower vacancy rate, while better for the health of the market, should not be too low, as extremely low vacancy constricts availability and drives up prices too much. All 10 of these markets have a vacancy rate below the average of 3.4% among the 100 largest metropolitan areas, but only two are among the 10 with the lowest rates.
Finally, these places have low foreclosure inventory. Places with low foreclosure inventory had less severe declines during the recession. Of the 10 healthiest housing markets for 2013, few had severe declines, peak-to-trough, in home value. Because of this, there are fewer homes on the market that had been foreclosed. In these cities, rising home prices can be more fairly said to be the result of a growing market rather than the result of depressed prices due to the market being flooded with foreclosed homes. Bethesda, one of the metro areas on this list, had a foreclosure inventory of just 2.7 per 1,000 units, the fourth-smallest proportion in the country.
24/7 Wall St. reviewed the ten housing markets identified in Trulia’s “2013’s Top 10 Healthiest Housing Markets.” To make this list, these markets needed to have high job growth, low vacancy rates, and low foreclosure inventory. Job growth was calculated over 12 months through October. Vacancy rate, provided by RealtyTrac, is for November, and foreclosures per 1,000 units is for October. In addition to these data, Trulia also provided year-over-year change in home prices through November, year-over-year change in asking price through November, year-to-date construction permits per 1,000 units through October and the peak-to-trough decline in home prices during the recession.