Real Estate Bright Spots

Despite the real estate sales crisis of the past few years, several markets are showing rebounds. The S&P/Case-Shiller 2010 Year In Review report says the year was noteworthy for what may be a reversal of the housing market turnaround in late 2009 and early 2010. For 2011, national home prices have experienced the first positive gains since mid-August 2010, according to Clear Capital.

Washington, D.C. and its surrounding metro areas in Virginia and Maryland have led the recovery, with prices rising over the past three quarters and a briskly increased sales volume. "It's the city that's been the standout in strength of the last several months," says David Blitzer, Managing Director & Chairman of the Index Committee for S&P Indices. "A large part of that is that it's the base of U.S. government, with many federal employees and firms that work with the government. Unemployment rates are low, and government-based employment is more stable."

Indeed, the unemployment rate is one of the leading factors in housing rebound, and the D.C. area's 5.7 percent rate is one of the country's lowest. Although the median home price of $331,100 is nearly twice the national, affordability is high at 78.8 percent and it is much less expensive to buy than rent. In addition, the region boasts one of the top median household incomes and growing population with significant in-bound relocation.

Blitzer also points to Southern California as a robust rebound market, particularly Los Angeles and San Diego, which recorded positive annual changes for 2010 of 3.3 percent and 3 percent, respectively. Job recovery in San Diego has been strengthening, but S&P mainly attributes the healthy market to the area's lack of overbuilding in recent years. "You go not too far away, to Phoenix and Las Vegas, and it's horrendous," Blitzer says. "What's the difference? Primarily it was overbuilding; those areas had much more abundance of available land than Southern California."

Two other regions of the country that have fared better in the housing downturn are the New York City Metropolitan area (including nearby parts of Connecticut and New Jersey), and major Texas markets. In spite of the concern in New York about its reliance on the financial industry, it was the last to fall into the recession and has started a strong comeback. "The New York Metro MSA experienced much of the same run-up and home price correction as the rest of the nation, but has been unique in its ability to rebound faster than most markets," says Alex Villacorta, Director of Research and Analytics for Clear Capital. Unemployment rates are lower than national averages and have continued to fall since last summer. And although it continues to be some of the most expensive real estate in the country, its strong multifamily market props up growth.

Texas, on the other hand, is positively impacted by affordability as well as lower foreclosure rates and tax incentives, especially Houston and Dallas. Homes sales over the last six months increased in every Texas major metropolitan area, and overall economic growth in the largely recession-proof energy industry have added to its rebound.

Around the country, many markets rank highly in terms of predictions over the next year. Veros Real Estate Solutions recently announced its forecast through March 1, 2012 with the perhaps surprising choice of Anchorage, Alaska in lead position. Eric Fox, Vice President of Statistical and Economic Modeling for Veros, says, "We really have to do two things to accurately forecast: we have to model historic change in house prices and relate that to key drivers such as interest rate, unemployment, affordability index, supply of housing and other variables. We ask, what are the key variables driving the top markets, and are they different than those driving the bottom markets?"

Like Blitzer, Fox sees oversupply as a key factor in the worst markets two or three years ago, but says Veros isn't seeing that as the top driver anymore. "What we're seeing in the bottom markets is unemployment; in 8 of the 10 worst markets, unemployment is the top variable," Fox says. Even if affordability and interest rates are good, job insecurity makes homebuying too risky for many. "On the other hand, when we look at the top 10 performing markets, just the opposite pattern occurs," he adds. "Unemployment is no longer the key driving variable, but interest rates. There, people are saying the economy may not be great nationwide, but prices are at good levels and interest rates are fantastic. That's really the difference between the haves and have-nots right now."

Strong price appreciation pushed Anchorage to the top, along with its affordability, relatively high median income and energy industry employment. Another off-mainland location is a market to watch: Hawaii. Honolulu is at the top of virtually everyone's forecast list, with stable price trends and increasing sales.

Colorado has some strengthening markets, particularly smaller metro areas such as Boulder and Pueblo, which have seen less peak-to-trough drops and quicker rebounds. First-quarter home prices in Pittsburgh are up 12.2 percent year-on-year, according to the National Association of Realtors, and homes in the area have retained a modest improvement in equity. North Dakota, particularly Fargo and Bismarck, missed the majority of effects from the housing bubble. The state is considered to have full employment, and foreclosures are low.

Going back to the top three markets that have been rebounding over the past months, they are all on the strong forecast list as well. Clear Capital shows the trend for continued growth in the New York Metro area, and Buffalo-Niagara Falls is in the top five predicted strong markets for both Veros and Inman News. Low foreclosure rates and one of the fastest-rising median list prices are creating a brisk market there.

"The Washington, D.C. Metro area has shown a similar resiliency to the post crash environment as New York," Villacorta says. Clear Capital forecasts show continued price growth and decreasing saturation for the area. A 7.9 percent state unemployment rate bodes well for major markets in Texas, with home prices forecasted to gain in Houston and Dallas. And Veros places Amarillo as its second strongest projected market after Anchorage, with forecasted 3 percent growth. Veros predicts, in fact, that 40 percent of major metro areas will experience property appreciation in 2011; and Fiserv estimates that by 2014, U.S. home prices will be 7.2 percent above 2010 levels. "There definitely are strong markets out there; it's not all gloom and doom," Fox reports. "There are pockets of good things going on and overall, things are starting to look more and more positive in each quarterly update."