Healthiest Housing Markets for 2011

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.

"I think much of what we are seeing with home prices is simply a shift in what has sold," says Hanley Wood's director of research Jonathan Smoke, who compiles the index. "All that's being measured now are lower-end home sales. As above-median homes begin selling again in larger numbers, home price declines will be history."

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 20 healthiest housing markets for 2011.

20. Boston-Cambridge-Quincy, MA-NH

Market Health Indicator: 62.6

2011 Building Permit Forecast: 8.469

Percent Change in Building Permits: 32%

More people would no doubt move to Boston if the housing wasn't so expensive and the winters so harsh. They would find that the unemployment rate, 6.75%, is well below the national average, even as the metro area continues to add jobs. Plus, those jobs are well-paying. The median income here is $75,669.

It needs to be because housing is expensive, though prices are falling. The median price of a home, which got as high as $410,750 in 2005, fell to $344,540 last year, and economists at Moody's economy.com predict it will drop another 6% this year. Boston's meager household growth--the smallest on our top 20 list--won't help matters. But at least the area continues to add families, unlike many other big Northern cities.

Price declines, though, aren't expected to stop builders from pulling more permits. Building permit activity rose 17% last year, thanks to a big jump in multifamily permitting late in the year, and Moody's predicts a gain of another third this year, with a huge increase forecasted for 2012 that would take the area back nearly to 2006 levels.

Visit our Local Markets page for Boston to see more data and analysis.

19. Omaha-Council Bluffs, NE-IA

Market Health Indicator: 62.8

2011 Building Permit Forecast: 3,008

Percent Change in Building Permits: -4%

Despite improved economic conditions in Omaha, the housing market is expected to continue at its usual slow-but-steady pace in 2011. NP Dodge Real Estate reported that Omaha home sales rose 2% during the year that ended January 2011. Thanks to decent demand and job growth, the median sales price of an existing home is up 1.9% in the last year, according to Trulia, reaching $160,000 in late February.

Unfortunately, new construction appears to be lagging the overall market. The 2% increase in total home sales includes an 8% decrease in new home sales. And that number excludes condos, which were down even more--17%. Permit activity fell 14% last year, due in part to the conclusion of a big military project. Moody's predicts the decline will slow to 4% this year.

It forecasts big growth in 2012. Housing fundamentals are strong in Omaha, which didn't have the major swing in home values that pounded other markets. Omaha ranks far below the national average on RealtyTrac's list of MSAs hit hardest by foreclosures. The metro area has only 1,013 homes in the foreclosure process, according to Trulia, compared to 3,532 homes for sale.

Visit our Local Markets page for Omaha to see more data and analysis.

18. Boise-Nampa, ID

Market Health Indicator: 63.0

2011 Building Permit Forecast: 3,358

Percent Change in Building Permits: 109%

The job picture has improved in Boise, the only Western market on our top 20 list. Employment is projected to rise by almost 2% and cut into an unemployment rate that stood at about 9.5% at year's end.

The housing market in Boise, especially the one for new construction, has nowhere to go but up. A market that produced 11,500 building permits in 2005 managed only 1,600 last year. Moody's Economy.com is predicting big things for this year, 3,358 total permits, a level of activity last seen in 2006.

Builders in Boise will be swimming against the real estate tide, though. According to Trulia.com, median existing home prices fell 10.7% in the last year to $142,898 in January 2011. (They peaked at about $225,000 in 2007.) Also, existing home sales fell 37% in the last year.

Boise has been bitten by the foreclosure bug. It finished No. 20 on RealtyTrac's list of the MSAs hit hardest by foreclosure last year--one out of every 21 households received a notice last year. As a result, in January there were nearly as many foreclosures (1,714) as there were homes for sale (2,051), according to Trulia.

Visit our Local Markets page for Boise to see more data and analysis.

17. Richmond, VA

Market Health Indicator: 64.2

2011 Building Permit Forecast: 4,539

Percent Change in Building Permits: 29%

The big news in Richmond is that building permit activity rebounded by 21% last year after four consecutive years of decline. The gain was led by an increase in multifamily activity, though nearly three quarters of residential construction here remains single-family. This occurred even as existing home sales fell 6.4%.

Richmond, the state capital of Virginia and home to several large colleges, has one of the lowest unemployment rates in the country, 7.3%, though job growth appears to have stalled in education and healthcare, two stalwarts during the recession. As a result, population growth slowed to only 1% last year, and the median income fell for the second consecutive year. That trend is forecasted to end in 2011, with income levels rising 2.3%.

Though permits have fallen dramatically since 2004, when they approached 10,000, the Richmond housing market has remained pretty stable. Home prices, which peaked at $233,000 in 2007, had fallen only 12% to $206,000 by last year, and they are expected to stay in the same vicinity for the next two years.

Visit our Local Markets page for Richmond to see more data and analysis.

16. Wilmington, NC

Market Health Indicator: 65.0

2011 Building Permit Forecast: 2,578

Percent Change in Building Permits: 41%

Economic conditions in Wilmington, a coastal town with low-paying jobs and above-average unemployment, may not seem that great to locals. But the town's stabilizing economy and inexpensive housing for a beach town (the median price of a home is only $171,000) make it look pretty good to outsiders. Wilmington continues to enjoy some of the strongest population growth in the country--2% annually for the last several years.

The good news for locals is that business is picking up; it helped drive a slight increase in non-farm employment last year. Business analysts believe the region's low business costs, diverse industrial base, and desirable living environment, augur well for strong growth in years ahead.

Unfortunately, Wilmington's unemployment rate is expected to recede slowly, due in part to the influx of new people looking for work. Median home prices, which peaked at $221,000 in 2006, had fallen only 27% to $171,000 through last year. They are expected to remain at about that level for the next two years. Building permit activity rose 22% last year, and it's expected to rise twice as fast this year.

Visit our Local Markets page for Wilmington to see more data and analysis.

15. El Paso, TX

Market Health Indicator: 65.8

2011 Building Permit Forecast: 4,685

Percent Change in Building Permits: 1%

The secret is out. El Paso has been a big beneficiary of the 2005 Base Realignment and Closure Act (BRAC). Thanks to base closings elsewhere, more than 30,000 military personnel and their families have been relocated to Fort Bliss. The MSA's robust population growth has fueled demand for housing, new roads, and schools that has attracted national attention. The Brookings Institution ranks El Paso as the 20th "strongest" metro area in the country.

The influx of soldiers will continue this year and next, creating demand for more business services. Hanley Wood Market Intelligence forecasts the addition of 4,600 new jobs this year, followed by even bigger growth in 2012. El Paso, located near the border with Mexico, is quickly becoming a big city. The Census Department expects its population to top 1 million by the end of 2015.

The housing market is expected to rebound this year. Existing home prices rose slightly last year, reaching $132,000 in the fourth quarter. Builders sense that big growth may be afoot; they took out 34% more building permits n the fourth quarter than they did a year earlier. The biggest gains were in multifamily. Apartment Realty Advisors estimates that 8,000 new units will be needed to meet rising demand in 2012 created by the influx of military families.

Visit our Local Markets page for El Paso to see more data and analysis.

14. Nashville-Davidson-Murfreesboro-Franklin, TN

Market Health Indicator: 67.2

2011 Building Permit Forecast: 8,326

Percent Change in Building Permits: 53%

Nashville has enjoyed a dramatic improvement in hiring since unemployment peaked there in June 2009. The service sector has led the way, and now conditions in manufacturing and construction are improving. Several big local employers recently announced expansion plans. Austin Powder will spend more than $110 million for a new plant that will create 80 jobs, and Virginia-based Faneuil Inc. will open a new office and hire 200 people.

After three straight years of decline, incomes in Nashville finally turned positive last year, though they increased by only 1%. Moody's Economy.com expects income levels to rise at twice that rate this year.

After a very strong start, existing home sales stumbled down the home stretch and finished the year 4% behind the previous year. Flagging demand led to the fourth straight year of declining home prices, but median home prices ($164,000 last year) are still within $20,000 of their peak.

Improving economic metrics buoyed the spirits of builders, who increased the pace of building permit activity last year, after four years of declines. Total building permits in December were 35% above year-ago levels, with gains coming from both single-family and multifamily segments.

Visit our Local Markets page for Nashville to see more data and analysis.

13. Birmingham-Hoover, Ala.

Market Health Indicator: 70.1

2011 Building Permit Forecast: 1,657

Percent Change in Building Permits: 4%

Birmingham, the largest city in Alabama, seems to be ahead of the economic curve, with positive income, population, and job growth in 2010, all of which are expected to continue in 2011. Unfortunately, the payoff in renewed home building activity isn't expected until 2012, when Moody's Economy.com thinks permit activity will more than double.

Housing sales slowed 28% in the fourth quarter of last year, according to data from the Alabama Center for Real Estate. This led to a decline in median home prices for the fourth consecutive year. Even so, median home prices, which finished at $140,000 last year, are off only 15% from their peak of $165,000 in 2006. They are expected to remain stable this year.

Builders turned bearish last year, pulling 8% fewer building permits, a trend that's expected to reverse this year. Birmingham is a largely single-family market, with detached homes accounting for more than 85% of permit activity.

Visit our Local Markets page for Birmingham to see more data and analysis.

12. Dallas-Ft. Worth-Arlington, TX

Market Health Indicator: 70.7

2011 Building Permit Forecast: 30,630

Percent Change in Building Permits: 52%

Dallas may have dropped out of the list of the top 10 healthiest markets, but the Metroplex still managed to add 50,800 jobs outside of farming last year, a 1.8% increase in employment. That was enough for the U.S. Bureau of Labor Statistics to dub Dallas a "rebounding economy."

People and businesses continue to flock to this business center because of strong employment prospects and affordable housing. The median price of a home stood at $149,000 at year-end, just about where it was at the peak of the market. The Dallas Economic Development Council recently announced plans to revitalize the city's downtown to cater to young professionals. A similar effort by the city of Fort Worth appears to have worked.

Builders remain bullish on the area's prospects--they pulled 19,500 single-family permits last year, a 33% increase. In an indication that construction is about to accelerate, several developers last year picked up large tracts of land, especially in high-growth areas of Ft. Worth. The Pulte Group, for instance, recently bought 1,300 home sites at West Fork Ranch.

Visit our Local Markets page for Dallas to see more data and analysis.

11. Washington-Arlington-Alexandria, DC-VA-MD-WV

Market Health Indicator: 74.8

2011 Building Permit Forecast: 20,397

Percent Change in Building Permits: 32%

Strong job growth is the big story in the nation's capital. Non-farm employment rose 1.4% last year, with most jobs in the service sector. The unemployment rate (5.7% in December) is the lowest of any major metro area in the country. The prospect of finding employment drew more people last year to the Washington, D.C. region, and household formations are expected to grow another 1.2% this year.

Washington, D.C. is one of the healthiest residential real estate markets in the country. Existing home sales picked up throughout the metro area last year, with the exception of the District of Columbia. Northern Virginia and Prince George's County led the way, according to Fulton Research.

Sales were aided by a decline in median home prices, which used to soar above the national average. They fell to a more earthly $304,900 level last year, and they may have some way to go before they hit bottom. Moody's Economy.com projects a 7% decline in existing home prices this year, as banks work through foreclosures and sellers cut prices in response.

Builders are betting on continued prosperity. They drew 26% more building permits last year than the year before. Though both single-family and multifamily permits rose last year, and single-family permits account for two-thirds of the activity, multifamily construction is poised for some big increases, particularly in low-rise apartments close to light-rail stops. Greystar, for instance, recently announced plans to build five separate multifamily projects over the next two years that will add 1,500 homes.

Visit our Local Markets page for Washington DC to see more data and analysis.

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.

Visit our Local Markets page for San Antonio to see more data and analysis.

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.

Visit our Local Markets page for Charlotte to see more data and analysis.

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.

Visit our Local Markets page for Houston to see more data and analysis.

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.

Visit our Local Markets page for Minneapolis to see more data and analysis.

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.

Visit our Local Markets page for Gulfport to see more data and analysis.

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.

Visit our Local Markets page for Huntsville to see more data and analysis.

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%.

Visit our Local Markets page for Durham to see more data and analysis.

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.

Visit our Local Markets page for Austin to see more data and analysis.

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.

Visit our Local Markets page for Raleigh to see more data and analysis.