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The U.S. Cities Whose Housing Markets Are Likely To Outperform And Underperform In 2016

This article is more than 8 years old.

Nationally the housing market should be able to muster another gain in 2016, for the simple reason that there is still sizable pent-up demand for home buying — and supply will steadily rise to help meet that demand. The headwinds of rising mortgage rates and shaky global economic conditions exist, but the tailwinds consisting of more jobs and the likelihood of loosening underwriting standards will help propel the housing market forward.  All in all, positive though moderate gains for both home sales and home prices are in the cards on a nationwide basis.

Naturally, some local markets will perform better. Given the many uncertainties and unexpected events that arise throughout the year, one should never presume to know which cities will be in the top tier. Nonetheless, one can still reasonably project which markets will be among the better performers just based on one important data point: jobs. As common sense would have it, when jobs tank home prices also buckle. That was the case for home prices on the national level when 8 million jobs were lost in 2009. When in early 1990s Massachusetts suffered nearly half a million job losses (representing 15% of the total jobs in the state), Boston home prices fell for six straight years. Texas also felt the pain during the oil bust in the mid-1980s resulting in a wait of over a decade to fully recover the lost value.

Conversely, when jobs are created then home prices rise. Therefore, the candidates that are among the top performers in regards to both rising home sales and home prices will generally be out West and in the South. Salt Lake City, Portland, and Riverside will likely experience a good year in the West.  Atlanta, Charlotte, and Tampa look solid for gains in the South. One Midwestern city will shine and that market is Grand Rapids. For the Northeast, Providence could surprise us. Aside from a great job local market, what these markets have in common are relatively affordable home prices.

To look at the larger picture, the national job growth rate over the past 12 months to November was 1.9%. Compared to the national level, the job growth rates for metro markets chosen for outperformance were as follows:

There are other markets with similar or even faster job growth rates, but the very high home prices in these areas could deter buyers and thereby dampen home buying. San Jose with a 5.1% job growth rate and Austin with a 3.9% growth rate are prime examples where job gains may not necessarily translate into more home buying activity because of affordability issues.

On the other hand, the weak performers will be the markets suffering job losses.  Currently, due to the oil and coal price collapses, Louisiana, North Dakota, Oklahoma, West Virginia, and Wyoming are the only states with fewer jobs now versus one year ago. In addition, some small manufacturing towns hit by the stronger dollar, and thereby less able to compete with cheaper foreign produced products, could also feel the pinch. Namely, Allentown-Bethlehem (PA), Dubuque (IA), Peoria (IL), and Roanoke (VA) have very affordable homes but prices could still buckle as people leave for jobs elsewhere.  Another area to note carefully is Pine Bluff (AR), which is off the chart with a massive bleeding of jobs of 7.2%.