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.

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"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.

Credit: Gregg Shupe

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.