Gathering Strength: The Healthiest Markets for 2011
Stronger economic metrics lay groundwork for a housing recovery in the healthiest markets.
When we created the Builder Healthy Markets Index several years ago, there were few classically healthy markets to speak of. With nearly every economic metric falling–home prices, employment, household formation, and incomes–only one or two markets managed to score higher than 50, the barometer for a truly healthy market.
Today, thanks to an improving U.S. economy, which has finally started to lift employment and incomes, nearly half the top 100 MSAs on our list could be considered healthy. But even though incomes are rising and employment prospects have improved, there’s still one metric weighing on home building activity–home prices are projected to decline this year in virtually every major housing market.
It’s not clear how much of that has to do with foreclosure sales, which outnumbered new home sales by more than 2 to 1 last year, and how much it has to do with a change in the size and price range of homes that are selling.
Healthiest Housing Markets Archive
Regardless of their source, price changes have a big, largely unmeasured impact on consumer psychology. Some brave souls will take advantage of the most affordable housing market in the last decade, better employment prospects, and growing incomes, to plow forward with housing purchases. Others, put off by headlines that indicate prices have yet to hit bottom, will no doubt wait until the coast is completely clear.
This much is certain: household balance sheets are much stronger. Americans have earned back much of what they lost in the stock market in recent years. They are starting to spend money on large durable items such as dishwashers and cars. Most major housing markets will finally see job growth this year and incomes are rising again in virtually every big market.
In the meantime, the data make clear that many builders are betting the end is near. Permit activity picked up dramatically in many of the hottest markets toward the end of the year, particularly in the multifamily sector. Continued increases are in store for 2011, based on the projections from Moody’s Economy.com that we’ve included for each market.
As in previous years, our index is forward-looking. It is based on comparisons between actual data for 2010 and 2011 projections compiled by Moody’s Economy.com. The data is then weighted by Hanley Wood Market Intelligence to produce a Healthy Market index for the top 100 metropolitan areas, based on permit activity.
The year’s list of the top 20 markets contains many of the same markets from last year, though we have a new leader of the pack. Housing markets in Texas and the Carolinas, where homes are relatively inexpensive, and where price appreciation didn’t get completely out of hand during the housing boom of the last decade, continue to dominate the list. Sixteen of the 20 markets on the list, in fact, are in the South.
Once again, several MSAs that are home to major military bases also show up on the list, along with a couple of Midwestern markets that have avoided the ups and downs of housing cycles. And a recovery that started in the Carolinas seems to have spread northward along the Eastern seaboard to encompass Richmond, Va., and Washington, D.C., and as far north as Boston.
Here are the 10 healthiest housing markets for 2011.
10. San Antonio, TX
Market Health Indicator: 75.6
2011 Building Permit Forecast: 8,002
Percent Change in Building Permits: 23%
San Antonio, the seventh largest city in the nation, has enjoyed one of the most stable housing markets during the boom and bust of the last decade. The median price of an existing home–about $150,000 last year, and expected to remain at about the same level for the next two years–has barely budged as many markets elsewhere gyrated wildly.
Strong employment growth (1.84% last year), coupled with inexpensive housing, is the secret to the city’s success. The region’s unemployment rate, 7.3% in December, is one of the lowest in the country. Despite being home to numerous military bases, including Fort Sam Houston and Lackland Air Force Base, San Antonio now enjoys a diverse employment base of financial service, health care, tourism, and other businesses.
Steady household growth (2.37%) is expected to continue this year, and median incomes are projected to rise another 2.33% to $50,000. Despite its size, San Antonio doesn’t even make the list of the top 100 metro areas affected by the foreclosure crisis. Permits, which reached as high as 22,000 in 2005, stood at 6,500 last year and are expected to grow by nearly one-quarter this year.
9. Naples-Marco Island, FL
Market Health Indicator: 75.8
2011 Building Permit Forecast: 2,504
Percent Change in Building Permits: 108%
Naples is outperforming the rest of Florida, despite a median home price ($330,000 at the end of the year) that is among the highest in the Southeast. Existing home prices reached as high as $515,000 during the housing boom. The metro area, which is heavily dependent on tourism, also has a persistently high rate of unemployment–12.8%.
Where is the strength coming from? Part of it stems from the sheer desirability of living in this resort town, renowned for its high-end shopping, restaurants, and placid beaches. The population is still growing; it rose 2.6% last year to 329,000. And tourism rebounded strongly late last year, according to the local tourist bureau.
The new construction market in Naples seems to have emerged from recession, after nearly shutting down from 2008 to 2009. Building permit levels doubled last year and are expected to do the same in 2011. Even so, Moody’s is predicting another 19% decline in median home prices as the region continues to work through a high rate of foreclosures–14th in the country last year, according to RealtyTrac.
Visit our Local Markets page for Naples to see more data and analysis.
8. Charlotte-Gastonia-Concord, NC-SC
Market Health Indicator: 76.6
2011 Building Permit Forecast: 9,494
Percent Change in Building Permits: 65%
The Charlotte market may have hit bottom last year. Builders pulled only 5,750 permits (permit levels got as high as 25,000 in 2006). Moody’s Economy.com is calling for major increases during the next two years, including a 65% rise in 2011.
Charlotte is another one of those golden markets where home prices never got out of hand. The median price of an existing home only rose as high as $204,000 at the peak of the market in 2007. As 2010 closed, it was still at about $190,000 and expected to stay in that general vicinity through 2012.
Strong household formation, even during the economic recession, is the secret to Charlotte’s success. Households are projected to rise another 2.4% this year. The area is projected to add enough jobs to keep up with population growth, but little more. Though Charlotte suffers from above-average unemployment, foreclosures remain relatively low.
7. Houston-Sugar Land-Baytown, TX
Market Health Indicator: 77.3
2011 Building Permit Forecast: 34,763
Percent Change in Building Permits: 30%
Hear this–things are looking up in Houston. Home prices have stabilized. Employment will grow by a robust 2.66% this year, and cut the unemployment rate by nearly half a percent. Median incomes will rise strongly, by 3.33%. And building permit activity will increase by nearly a third.
Houstonians make good money. The median income here, $56,500, is about $10,000 above per capita income for the state. More than 3,000 energy-related firms are located in the MSA, the center of business for the U.S. oil and natural gas industries.
Houston showed 35,800 foreclosure filings last year, according to RealtyTrac, one out of 62 households. That may lead to a small decrease in median existing home prices which crept up to $153,000 last year. Even so, that’s about where they were in 2007, at the height of the market.
Houston is a huge market for new homes, one of the biggest in the nation, even though last year it produced only about a third of the 71,000 permits pulled in 2006. The large volume of activity here has attracted more than one national builder during the downturn.
6. Minneapolis-St. Paul-Bloomington, MN-WI
Market Health Indicator: 77.6
2011 Building Permit Forecast: 9,403
Percent Change in Building Permits: 66%
The Little Apple appears poised for growth. Last year’s strong rebound in permit activity–filings were up 22 percent in 2010, led by a surge in multifamily–is expected to accelerate in 2011. If builders actually pull 9,403 permits this year, as Moody’s forecasts, that would equal half the volume of 2005.
Foreclosure filings actually fell in Minneapolis last year, though banks still have inventory to work through. Median existing home prices, which stood at about $167,000 at the end of last year, have fallen only 27% from their peak in 2005. The market enjoys decent household growth (1.77% is forecast for 2011) for a Northern city, though most of it comes from natural growth. It still has a hard time attracting residents.
The housing industry in Minneapolis, a major hub for medical technology, is supported by a relatively high median income level among residents. Median incomes reached nearly $66,000 last year, and Moody’s expects another 2% increase this year, which would be a marked increase over the pace of the last seven years.
5. Gulfport-Biloxi, MS
Market Health Indicator: 78.1
2011 Building Permit Forecast: 1,783
Percent Change in Building Permits: -4%
Things are looking up in Gulfport-Biloxi, a region that was ravaged in 2005 by Hurricane Katrina. Though fewer households live here now (92,300) than in 2004, Moody’s anticipates strong growth, 3.24%, this year. That will be coupled with a large, 4.52% increase in median incomes, which have stagnated at roughly $38,300, well below the national average.
Unemployment here is also below the national average. Gaming and tourism are the major industries, though nearly a quarter of the jobs here are in government. Keesler Air Force Base is a big employer.
Housing in Biloxi is inexpensive, with a median price of $122,450 last year. Home prices, down from a peak of $154,400 in 2007, appear to have bottomed out. Moody’s is calling for an increase next year. Permit levels, which got as high as 5,400 in 2007, are expected to remain in the vicinity of 1,800 this year, before rising strongly in 2012.
4. Huntsville, AL
Market Health Indicator: 80.3
2011 Building Permit Forecast: 4,283
Percent Change in Building Permits: 55%
A strong military presence here contributes to an unemployment rate of roughly 7%, well below the national average. Nicknamed “Rocket City,” Huntsville is home to the Marshall Space Flight Center. Many of the region’s private employers are engaged in the aerospace and defense industries.
The 2005 Base Realignment and Closure Act (BRAC) caused a big population influx and kept income trends steady. The stimulus will be felt again this year, when the Army Materiel Command opens a new headquarters that’s expected to add 1,354 jobs. All told, the region is expected to add another 3,460 jobs this year.
Household growth is stronger than any other top 100 market in the country. Huntsville is a very affordable place to live, with a median home price of $123,000 in 2010, down only $7,000 from the peak. Median prices fell slightly last year after existing home sales fell 8.5%. But building permits rose for the first time in four years. They were up 10.7% over the previous year, with single-family accounting for a full 92% of the action.
3. Durham-Chapel Hill, NC
Market Health Indicator: 81.5
2011 Building Permit Forecast: 3,250
Percent Change in Building Permits: 70%
Thanks to a strong base of employment in higher education and research, the median income in Durham will rise to 4.36% this year, faster than in any of the other top 20 markets. Durham added another 4,100 jobs last year to reach 287,300, dropping its unemployment rate below 7.5%. With a repeat performance in 2011, it will climb above 2007 employment levels.
The housing market here appears to have recovered, if it ever really suffered. Existing home prices rose 3% in 2010, to $178,000, even as sales fell 6% in the Triangle area, according to the local Realtors association. Home prices have barely fallen–they only got as high as $180,000 in 2007.
The permit situation is stacking up as a tale of two industries. Single family permits rose 60% last year. But a sharp fall off in apartment permits kept the overall total in the minus category. Moody’s is calling for a reversal this year, with total building permits rising by 70%.
2. Austin-Round Rock, TX
Market Health Indicator: 86.5
2011 Building Permit Forecast: 11,079
Percent Change in Building Permits: 57%
Though Austin was knocked from the top spot on this year’s list, its housing fundamentals continued to show solid improvement. The metro area enjoys some of the strongest job growth in the nation. Employment accelerated last year with the addition of 18,700 more jobs, most of them in service industries, lowering the unemployment rate to 7%. Google recently fanned the employment flames by announcing it wants to open a division there dedicated to location-based marketing and mobile recommendations.
Austin has grown to become the 15th largest city in the nation, according to the U.S. Census Bureau. Its strong fundamentals have attracted the interest of apartment owners and developers: MPF Research forecasts that it will be the second best apartment performer this year.
Median incomes rose 3% last year. Median home prices in Austin rose right through the economic recession, eking out a 1% gain last year to $195,000.
1. Raleigh-Cary, NC
Market Health Indicator: 86.9
2011 Building Permit Forecast: 9,604
Percent Change in Building Permits: 90%
Raleigh builders sense that their market may be in for something big–building permits increased 85% last year to 8,600, with much of the strength on the multifamily side. But single-family permits increased as well as builders took stock of improving market conditions.
The market was hot enough that existing home prices rose 4% in 2010, though they are expected to fall 10% this year due to a spreading foreclosure problem. But excess inventory may be absorbed quickly, because households are still moving in large numbers to Raleigh, drawn by its temperate climate and good employment prospects.
Raleigh continued to add jobs last year, especially in services, lowering its unemployment rate to 8.4%. This is an affordable place to live, and it recently ranked among the best places to retire.