Top 5 Real Estate Markets to Watch in 2012

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housing markets to watchBy Andrea V. Brambila

While national home prices and sales may not recover to their historical levels until 2013 at the earliest, some local housing markets always outperform others in any given year.

In this second annual report (see last year's "Top 10 Markets to Watch in 2011"), Inman News examined housing, economic and demographic data for metropolitan areas nationwide to identify 10 housing markets to watch in 2012.

These markets are showing signs of strength in several key metrics, including above-average price appreciation, a flourishing job market, a high rate of sales in proportion to population, a high level of home affordability, low foreclosure activity, a below-average share of distressed sales, a low vacancy rate, and other characteristics indicating a healthy housing market.

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Top Five Real Estate Markets to Watch in 2012
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Top 5 Real Estate Markets to Watch in 2012

Total population (2010):   1,130,490
Median sales price (Q3 2011):  $224,300
% ch. median sales price (Q3 2010-Q3 2011):   7.3%
Sales volume (# units sold Nov. 2010-Oct. 2011):   12,156
% ch. sales volume (Nov. 2010-Oct. 2011 vs. Nov. 2009-Oct. 2010):   -39.8%
Sales per population (Nov. 2010-Oct. 2011):    1 sale per 93 people
Unemployment rate (Nov. 2011):  7.8%
Foreclosure activity rate (Nov. 2011):  1 in 1,295 units
Walk Score:  40

Despite a steep drop in sales, the Raleigh-Cary market saw considerable price appreciation last year, with its median sales price for single-family homes jumping 7.3 percent from third-quarter 2010 to third-quarter 2011.

At $224,300, the Raleigh-Cary metro had the highest median sales price among the 10 markets on this list and was the only market with a median sales price above the U.S. median. Nonetheless, its affordability rate stayed above the national level, with 73.6 percent of its homes affordable to households earning the area's median income, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

Total population (2010):   623,061
Median sales price (Q3 2011):  $120,900
% ch. median sales price (Q3 2010-Q3 2011):    5.5%
Sales volume (# units sold Nov. 2010-Oct. 2011):   9,002
% ch. sales volume (Nov. 2010-Oct. 2011 vs. Nov. 2009-Oct. 2010):  -10.8%
Sales per population (Nov. 2010-Oct. 2011):    1 sale per 69 people
Unemployment rate (Nov. 2011):  7.1%
Foreclosure activity rate (Nov. 2011):  1 in 958 units
Walk Score:  41

Like Raleigh-Cary and other markets on this list, home prices in the Wichita metro area weathered the housing downturn comparatively unscathed.

"Inventory has been up and sales have slowed, but values have been relatively unaffected," said Mike Grbic, associate broker and owner of Mike Grbic Real Estate Experts -- Select Homes in Wichita.

The Wichita metro's median sales price rose 5.5 percent from third-quarter 2010 to third-quarter 2011, to $120,900. For 2011 as a whole, the city of Wichita posted one of the top 10 year-over-year median sales price hikes nationwide, up 17.2 percent, according to a chart provided for this report by Onboard Informatics.

Total population (2010):   1,054,323
Median sales price (Q3 2011):  $123,400
% ch. median sales price (Q3 2010-Q3 2011):    1.4%
Sales volume (# units sold Nov. 2010-Oct. 2011):  11,240
% ch. sales volume (Nov. 2010-Oct. 2011 vs. Nov. 2009-Oct. 2010):  -18.6%
Sales per population (Nov. 2010-Oct. 2011):  1 sale per 94 people
Unemployment rate (Nov. 2011):  6.9%
Foreclosure activity rate (Nov. 2011):  1 in 4,001 units
Walk Score:  63

The Rochester metro area had a 6.9 percent jobless rate in November, compared to an 8.2 percent rate nationwide. The area has seen employment grow 2.8 percent since its fourth-quarter 2009 trough, while employment in the nation as a whole has risen 1.3 percent during that time.

The metro has one of the top 20 fastest job growth rates nationwide, according to Brookings.

Of 100 major metro areas, Rochester is one of only 22 to have regained more than half of the jobs lost between its pre-recession high and post-recession low, the think tank said.

While Rochester has long been associated with the Eastman Kodak Co., the area's economic performance no longer depends on the declining fortunes of that company.

Total population (2010):  569,633
Median sales price (Q3 2011):  $157,900
% ch. median sales price (Q3 2010-Q3 2011):    0.8%
Sales volume (# units sold Nov. 2010-Oct. 2011):  7,448
% ch. sales volume (Nov. 2010-Oct. 2011 vs. Nov. 2009-Oct. 2010):  -25.4%
Sales per population (Nov. 2010-Oct. 2011):    1 sale per 76 people
Unemployment rate (Nov. 2011):  5.3%
Foreclosure activity rate (Nov. 2011):  1 in 863 units
Walk Score:  48

The Des Moines-West Des Moines metro area had a 5.3 percent unemployment rate in November -- among the lowest rates in the country. Moody's predicts the area will see a further 2 percent jump in jobs from third-quarter 2011 to third-quarter 2012.

"Strong Midwestern values, a highly educated and productive workforce, and the culmination of many years of cooperation between civic, corporate and government make the greater Des Moines area an attractive city to call home (and an) oasis of prosperity," said Brian Wentz, an agent at Burnett Realty in Clive, a suburb of Des Moines.

"That has attracted and retained top employers and led to many years of sustained growth, with no end in sight."

Total population (2010):  528,143
Median sales price (Q3 2011):  $128,700
% ch. median sales price (Q3 2010-Q3 2011):    7.3%
Sales volume (# units sold Nov. 2010-Oct. 2011):  6,109
% ch. sales volume (Nov. 2010-Oct. 2011 vs. Nov. 2009-Oct. 2010):  -18%
Sales per population (Nov. 2010-Oct. 2011):   1 sale per 86 people
Unemployment rate (Nov. 2011):  7.5%
Foreclosure activity rate (Nov. 2011):  1 in 973 units
Walk Score:  37

Located between Nashville, Tenn., and Atlanta, the Chattanooga metro area enjoys a low unemployment rate, high affordability, and the highest rate of out-of-state in-migration among the 10 markets.

The area's median sales price rose 7.3 percent in the year through third-quarter 2011, to $128,700. The vast majority of homes in the area, 81.3 percent, were affordable to median-income households during that quarter.

"One of Chattanooga's largest resident communities, (which) historically had enjoyed 3 to 3.7 percent on an average differential between list and sales price ... increased (to a) 4 to 4.9 percent differential from 2010 to 2011," said Linda Brock, an affiliate broker at Prudential RealtyCenter.com in Chattanooga.

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While real estate markets in the Midwest and Northeast made up the majority of markets on last year's list of 10 markets to watch, this year the Midwest and the South dominated. Two Northeastern markets, both in New York state, also made the list; and no markets in Western states are on the list.

The 10 markets are, in order: Raleigh-Cary, N.C.; Wichita, Kan.; Rochester, N.Y.; Des Moines-West Des Moines, Iowa; Chattanooga, Tenn.-Ga.; Peoria, Ill.; Amarillo, Texas; Binghamton, N.Y.; Waterloo-Cedar Falls, Iowa; and Bloomington-Normal, Ill. The Des Moines and Bloomington-Normal metros are on the list for the second year in a row.

Nationwide, unemployment is high, though trending down; the median price of an existing home fell over 4 percent in 2011; and existing-home sales rose a modest 1.7 percent last year, according to the National Association of Realtors.

A 'Transitional Year'

Stan Humphries, chief economist for Zillow, said 2012 will be a "transitional year" in the housing recovery, with an improvement in home sales and prices anticipated to fall to a long-awaited "bottom."

Zillow identified some markets that are "undervalued" on a historical basis in a chart provided for this report, and Inman News reached out to a range of other real estate research and information companies for their insight on those real estate markets expected to outperform others in the year ahead. Those companies' findings were not considered in the review and selection process of the top 10 markets featured in this report.

"While home values are expected to fall further (another 2 to 4 percent) in 2012 with a definitive bottom probably a year away, encouraging precursors to a true stabilization of home values are falling into place as the new year begins," Humphries said in a forecast Tuesday.

"Home sales will show a more consistent upward trend this year, slowly reducing the amount of vacant housing inventory. This increased demand will eventually start to put a floor under home values later this year."

An Upswing in Foreclosures?

U.S. foreclosure activity hit its lowest level since 2007 last year, though experts largely expect it to ramp up this year, putting downward pressure on home prices.

"There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010," said Brandon Moore, CEO of RealtyTrac, in the company's year-end foreclosure report. RealtyTrac also provided a chart for this report.

To compile the list of 10 markets to watch this year, Inman News looked for markets with above-average median sales price growth, a low unemployment rate, a high rate of sales per population, high affordability, low and falling foreclosure activity, a low share of distressed sales, above-average projected job growth, median household income growth, low and falling vacancy rates, growth in the number of building permits issued, above-average population growth, high projected population growth, and a rise in migration from other states.

While no markets on the list fulfilled all of these ideal economic characteristics, they did meet most of them.

Contrary to last year's list, in which most of the resulting markets had populations under 250,000, half of the metros on this year's list had populations above 500,000. This may be partially a result of only considering metros with a population of 150,000 or above, while last year's list did not limit the list by population size.

Among the findings in this report:

• Three of the 10 markets on this list are state capitals, and both Illinois markets benefit from proximity to that state's capital, Springfield.
• Four of the markets: Bloomington-Normal and Peoria in Illinois as well as Des Moines-West Des Moines and Waterloo-Cedar Falls in Iowa, are no more than 300 or so miles from each other.
• Nine of 10 markets had median sales prices below the national median in the third quarter of 2011.
• Where affordability rankings were available, the markets on the list had no less than 73.6 percent of homes affordable to those households earning the area's median income in the third quarter.
• All had unemployment, foreclosure, and vacancy rates lower than the national average. None of the markets had unemployment rates higher than 7.9 percent. All had lower shares of distressed sales than the national average.
• Only two of the markets had populations above 1 million, and three had populations above 500,000. The remainder had populations below that figure, but above a minimum 150,000.
• As in last year's report, jobs in the public sector as well as the health care industry were major employers in most markets. This year, however, nine out of 10 markets also counted manufacturing companies among primary employers. Technology companies, energy providers, and universities also boosted many markets.

The 10 markets are ranked according to population, sales volume, and median sales price appreciation. Population was weighted most heavily in the rankings, followed by sales volume in proportion to population, and rate of price appreciation.

More from Inman News:
9 Markets with Rising Real Estate Value
A House for the Dogs: See Pooch Palaces
Mortgage Rates Probe New Lows



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