After a long and painful downturn in the housing market, home prices are finally beginning to head north. According to Zillow, a real estate listing website, home values rose 5.1% across the United States between February 2012 and February 2013.
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Many local housing markets are performing considerably better than the country as a whole. Home values rose more than 13% in 10 of the 30 largest housing markets for which Zillow has data, and rose more than 20% in five of them. The biggest growth of all took place in Phoenix, where home values rose 24%.
Six of the 10 housing markets on the list are in California, which was hit harder by the housing downturn than most states. Three of the four metropolitan areas not in California — Detroit, Las Vegas and Phoenix — were also disproportionately hurt by the housing crisis. For example, in Las Vegas, home prices dropped 59% between the peak in the first quarter of 2006 and the third quarter of 2012.
Home values do not necessarily rebound quickly after a major downturn, said Svenja Gudell, a senior economist with Zillow. However, many of the areas with the most growth in the past year, notably those around Silicon Valley, have remained desirable places to live. This has helped these areas recover at a faster clip compared to the rest of the country. Residents have taken advantage of the record-low mortgage rates and relatively low prices, despite the fact that average home values in places like San Jose and San Francisco are higher than most of the country.
Buyers in many of these areas are investors looking to rent out the homes, leading to low inventory and higher prices. “Listings are very tight because you have a whole lot of demand,” Gudell said. “This has led to bidding wars on homes, which have in turn led to much higher home valuations in certain areas.” Even in places such as Detroit, where an emergency city manager was just appointed to address the city’s debt crisis, many of the homes that are on the market are being snapped up by investors, she said.
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Along with the growth of the housing market, unemployment has gone down in these areas. In many cases, the local unemployment rate dropped by nearly two percentage points between February 2012 and February 2013, compared to the national rate, which fell less than 1%. Notably, construction employment has risen considerably in the past year in many of the metro areas on the list. For example, construction headcount rose more than 12% in San Jose during the past year.
Based on a review of the median home value of the 30 largest housing markets measured by Zillow, 24/7 Wall St. identified the 10 housing markets that have risen the most from the first quarter of 2012 to the first quarter of 2013. Zillow also provided data regarding expected growth from the first quarter of 2013 to the first quarter of 2014, the number of homes sold in February, as well as the change in the number of homes sold from a year earlier. Unemployment rates as of February 2013 were taken from the Bureau of Labor Statistics. Data on when home prices peaked and the percentage decline since that time was based on median home value from Fiserv.
These are the hottest housing markets of 2013.
10. Denver, Colo.
-Change in home value: 13.1%
-Current home value: $234,200
-Bottom in home value: Q2 2011
-Forecast change in home value: 3.1%
The city experienced robust growth in 2012, and this is likely to continue, according to Zillow. However, between 2013 and 2014, home values are expected to rise only an additional 3.1%, by far the smallest growth of any housing market on this list. The Denver market did not fall as hard as other areas during the housing collapse. Between the peak in the first quarter of 2006 and the third quarter of 2012, Denver home prices only fell 5.4%. This February, more than 5,000 homes sold — an increase of 27% from the same month last year.
9. Detroit, Mich.
-Change in home value: 13.1%
-Current home value: $84,700
-Bottom in home value: Q3 2011
-Forecast change in home value: 4.4%
In recent years, Detroit has been hit by a steep decline in home prices, as well as continued contraction in the automobile industry. As of the first quarter of 2013, the average home value in the Detroit area was just $84,700, by far the lowest of all the large metro areas in the country measured by Zillow. Investor purchases helped push home values higher, although not as much as they did in many cities in California, Gudell said. Detroit continues to suffer from high unemployment. The area’s unemployment rate was 11.3% in February, down just slightly from 11.5% a year ago.
8. Los Angeles, Calif.
-Change in home value: 14.9%
-Current home value: $439,400
-Bottom in home value: Q1 2012
-Forecast change in home value: 11.1%
In addition to the nearly 15% growth already experienced in the past year, home values are expected to rise an additional 11% next year. The growth in the housing market in California has led to growth in employment as well. The unemployment rate in the Los Angeles metropolitan area was 10.3%, a significant improvement from the 11.6% rate a year ago. Between February 2012 and February 2013, the number of people employed in construction rose 7.1%, an indicator of an improving housing market.