These California Cities Are the Healthiest for Housing
NEW YORK ( MainStreet) The nation's healthiest housing markets are clustered in California and the rest of the West, according to Zillow.
Among the country's top 30 largest metro markets, the five healthiest are San Jose with a market health index of 9, San Francisco at 8.9, Los Angeles coming in at 8.6, 8.4 for San Diego and 8.1 for Denver.
"In the case of the cities mentioned, they have nice weather, lifestyle and jobs," said Mark Stapp, executive director of the Master of Real Estate Development (MRED) program at the W. P. Carey School of Business at Arizona State University. "All of these are sought after by a majority of the population. They are also culturally and socially diverse, relatively clean and offer significant opportunity. These places attract young professionals for these reasons and employers like to be there. This helps create a virtuous cycle."
On a scale of 0 to 10, Zillow's Market Health Index measures ten factors to determine the housing market's health.
"As markets continue to evolve and recover, the Market Health Index will reflect these changing trends, offering consumers a valuable tool on which to base their decisions," said Zillow Chief Economist Stan Humphries.
The ten indicators include the time homes stay on the market, foreclosures, delinquencies and negative equity, which is when the property is worth less than what is owed to the bank.
"Negative equity occurred during the prior recession when up to 20% of properties were underwater because buyers bought at inflated prices," said Wei Min Tan, licensed associate real estate broker with Rutenberg Realty in New York. "When there was a market correction and prices revalued, owners realized their home was worth a lot less than what was paid. They subsequently stopped paying the mortgage and allowed foreclosure to begin."
Fortunately or not, the healthiest housing markets are in non-judicial foreclosure states and are steeped in the technology sector.
In particular, San Francisco and San Jose are largely fueled by new and growing companies, such as Facebook and LinkedIn.
Only available for deeds of trust with power-of-sale clauses not traditional mortgages, non-judicial foreclosure states allow lenders to foreclose property without getting a court order first.
"The requirements for non-judicial foreclosure are established by state statute," said Gus Altuzarra, CEO of Vertical Capital Markets Group in Irvine, Calif. "There is no court intervention so the process is simpler."
However, before foreclosing, lenders must give special notice to the property-owner and wait a specified time before auctioning off the property.
"A market becomes speculative when prices rise much faster than supporting fundamentals such as income growth and rental yield," Stapp told MainStreet. "This leads to the bubble bursting or to very few transactions where only the wealthy can afford to buy property and the middle class is priced out."