HEAD WEST TO FIND THE HEALTHIEST REAL ESTATE MARKETS
Written by Phoebe Chongchua
Tracking the housing markets healthiest cities can be challenging as things change fairly quickly and surprisingly. For instance, who would have guessed that California would be listed as having five of the 10 healthiest housing markets in the nation? In fact, for healthy markets, head west.
According to zillow.com, not only does California have five healthy housing markets but it also has the number one healthiest housing market: San Jose. San Francisco, Los Angeles and San Diego are also in the top five and Sacramento is number 10 on the list.
"Rapid home value appreciation in the West, particularly California, is currently having a very positive effect on a number of other factors, including negative equity, foreclosure activity and the overall financial health of local homeowners. But that same rapid appreciation may cause affordability issues in the future in these markets, leading to potentially unhealthy conditions," said Zillow Chief Economist Stan Humphries.
Filling out the remainder of the top 10 healthiest housing markets are: Denver, Colorado (4th), Boston, Massachusetts (5th), Pittsburgh, Pennsylvania (6th), Portland, Oregon (7th), and New York, New York (9th).
So how does Zillow figure out which markets are the healthiest? The Zillow Market Heath Index is formed from 10 different metrics as detailed in a press statement by zillow.com, month-over-month change in the Zillow Home Value Index (ZHVI); year-over-year change in ZHVI; percent change in 1-year ZHVI forecast; percentage of homes selling for a gain; days listings spend on Zillow, adjusted for seasonality and for deviations from historic norms; the percentage of mortgage holders with negative equity; the percentage of mortgage holders delinquent on their loans; the number of foreclosures out of 10,000 homes; the percentage of sales composed of previously foreclosed homes; and the number of foreclosures out of 10,000 still held by banks, i.e. unsold REOs.
According to Zillow, "For each of the 10 metrics used in the Market Health Index, we assign each region a score along a continuous scale from 0 to 10, where 10 corresponds to the healthiest value and 0 to the least healthy among all regions in the US with available data. We take the average of these scores and then re-scale the average to range from 0 to 10. This becomes the Market Health Index. To ensure sufficient data availability, we only score regions with data from at least 5 of the 10 metrics we measure."
Influencing a real estate market's health is not just about supply and demand from buyers and sellers. It's also about real estate investors. Two of the worst markets are also markets that once had high real estate investor activity. Phoenix, Arizona, and Las Vegas, Nevada, are among the unhealthiest markets in large part due to rapid price appreciation from investor demand. Today, in Phoenix, there is a lot of housing inventory available (up 40 percent from a year ago). However, it's not clear if it's investors selling or homeowners who have gained some equity and now are electing to move.
As you watch market trends, keep an eye on investors who are now turning their investment-purchasing power to markets such as Atlanta, Georgia, and Charlotte, North Carolina, to see how investors will impact those real estate markets.