Real Estate
Best Cities For A Housing Recovery
Matthew Woolsey, 08.13.09, 04:00 PM EDT

Increased transactions and relatively low foreclosure resales spell good news for these markets.

The stock market is up 50% from its lows in March, and consumer spending increased in May, June and July. But when will housing turn around?

Even the wisest can't answer that, and experts caution against putting too much hope in rising home prices given the country's unemployment situation and high rate of mortgage defaults. But key measures indicate that some metros are more on their way to recovery than others.

Take Miami. Sales are up 27% over last year and only 3.5% of those are the result of foreclosure resales. In Lincoln, Neb., where sales are 15% higher this year than last, only 3.6% of them involved bank-owned properties Both top our list of markets on their way to health.

In Depth: Best Cities For A Housing Recovery

Behind The Numbers

In compiling our list, Forbes looked at 161 of the country's largest metropolitan statistical areas (or metros)--geographic entities defined by the U.S. Office of Management and Budget (OMB) for use by federal agencies in collecting, tabulating and publishing federal statistics--where sales activity had picked up over the last year, but where foreclosure sales, as a percentage of overall sales were the lowest. Our data came from Zillow.com, an online housing data firm based in Seattle, Wash. Our list doesn't profess to call the turnaround, but rather point out which cities are in the lead on the road to recovery.

To be sure, the national real estate picture remains grim. In Las Vegas and Madera, Calif., for example, respective sales are up 40% and 64% from a year ago. But 67% and 71% of those respective sales are from foreclosure resales.

The Rankings

10. San Jose, Calif.

9. Santa Barbara, Calif.

8. Redding, Calif.

7. Denver, Colo.

6. Bremerton, Wash.

5. San Luis Obispo, Calif.

4. Salem, Ore.

3. Colorado Springs, Colo.

2. Lincoln, Neb.

1. Miami-Ft. Lauderdale, Fla.

Other areas, however, are showing a spark at the very least and signs of bottoming at the very best.

Miami and Lincoln were followed by Colorado Springs, Colo., Salem, Ore. and San Luis Obispo, Calif. Here, sales have returned, but foreclosures are a relatively small percentage. In Colorado Springs, sales activity is up 14%, while transactions involving bank-owned properties made up one-fifth of them. While 20% is still a sizable chunk, it's relatively sound compared with areas like Bakersfield and Vallejo, Calif., and Phoenix, where over 50% of sales made up of foreclosures.

Because housing, like any asset, depends on supply and demand, the sales rate is an incredibly useful statistic in judging a recovery. However, an increased number of sales does not necessarily mean an imminent recovery.

"A bottom in sales volume is not the same thing as a bottom in home values," says Stan Humphries, chief economist at Zillow.com. "The former is a necessary precondition for the latter, but most economists expect prices to keep falling nationally through at least the early part of next year."

In Depth: Best Cities For A Housing Recovery