5 best and 5 worst U.S. housing markets, long term

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CHICAGO (MarketWatch) — If you’re in the market for a home these days, you’re likely looking for a place you can live in for a long time, rather than a house you plan to sell a few short years later. But after deep price drops over the past several years, home buyers want to feel comfortable that the value of the house they buy has a good outlook ahead of it.

In your particular market, that often means taking a close look at the employment picture, population growth and housing inventory before making a purchase.

Unlike traditional forecasts that look a year into the future, Local Market Monitor, a firm that analyzes markets for the banking industry, also puts together a three-year forecast. What follows are the highlights of its longer-term forecast: The top five and bottom five housing markets for the three years ahead, taken from a ranking of the largest 100 markets it covers.

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Top 5, No. 1. McAllen-Edinburg-Mission, Texas
A strong recovery in jobs is one reason this housing market is looking good right now. Plus, population growth is triple the national average, according to Local Market Monitor. Home prices rose 19% between 2002 and 2007, followed by a 4% drop between 2007 and today, said Ingo Winzer, president of Local Market Monitor. The number of jobs in the area increased 4% over the past 12 months. “McAllen is a border area and the growth in jobs in the past year is mainly in health services and government services [including schools] because of the rapid growth of the Hispanic population. These are lower-paying jobs that mainly affect the rental market and lower housing market,” Winzer said.

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Top 5, No. 2. San Jose-Sunnyvale-Santa Clara, Calif.
Home prices are close to a bottom in this area and there’s already a good recovery underway in the job market, driven by high-tech manufacturing and technology services, according to Local Market Monitor. Income levels are high, and population growth is slightly above average. During the housing boom (between 2002 and 2007), home prices rose a steep 43%; that was followed by a 21% drop. “The San Jose recovery is clearly connected to the high-tech sector, which is very much a boom-and-bust situation. During the recession, 30,000 tech jobs were lost, but 16,000 have been regained since 2009. These are high-paying jobs that affect the housing market,” Winzer said.

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Top 5, No. 3. Akron, Ohio
Home prices were down in Akron over the past year, but a strong recovery in jobs is one reason the market is looking up. Manufacturing, particularly of rubber, is a large component of the economy. This is an area that never saw large home-price increases during the housing boom; without a bubble, prices didn’t have far to fall. At left, Canal Park is the home of the Akron Aeros of the Eastern League.

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Top 5, No. 4: Houston-Sugar Land-Baytown, Texas
A strong jobs recovery is working in this market’s favor, where the oil drilling and services sector rules. It’s also an area with high population growth — almost triple the national average, according to Local Market Monitor. “The housing boom was all one way, with prices up 21%. The recession was almost non-existent, with jobs down just 1% [over the past year],” Winzer said. At left, the shuttle flight control room at Johnson Space Center. When NASA’s shuttle program ended, jobs were cut at the Johnson Space Center, but it continues to be one of Houston’s most popular family attractions.

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Top 5, No. 5: Pittsburgh, Pa.
Home prices are close to a bottom in Pittsburgh. In fact, the housing boom boosted prices in this market by 16%, but they really haven’t fallen. There’s also a good recovery underway in jobs here, with an economy featuring a large health and education sector, according to Local Market Monitor. At left, the skyline from the West End overlook.

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Bottom 5, No. 1: Wilmington, Del.
Continuing job losses and falling home prices plague this market. The finance sector, including credit-card operations, is big in Wilmington. Home prices got a huge boost during the boom, with a 47% rise in prices, followed by a 16% drop. “To a large extent, the housing boom here was similar to that in many other markets, not caused by any local economic circumstances, but by the wider national picture,” Winzer said. At left, a sign in Wilmington says “Welcome to Wilmington — A Place to be Somebody.”

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Bottom 5, No. 2: Atlanta-Sandy Springs-Marietta, Ga.
Home prices in this area experienced a large drop in the past year, according to Local Market Monitor. It’s also a market that overcorrected in the housing crash: During the boom (between 2002 and 2007), prices rose 15%, followed by a 21% drop, according to the firm’s data. Atlanta has a diversified local economy, and high population growth — almost triple the national average. But income is below average, and the number of jobs fell 8% over the past year. “Atlanta is a more difficult story, with 200,000 jobs lost since 2007, spread fairly evenly over the manufacturing, retail, finance, business services and government sectors, but a very large 55,000 of those jobs were lost in construction. There was no home-price boom in Atlanta, very possibly because far too many new homes were built,” Winzer said. At left, Hedgewood EarthCraft home in Glenwood Park, a green development in Atlanta.

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Bottom 5, No. 3: Tucson, Ariz.
A large drop in home prices over the past year signals that this is a dangerous market for investors — even though Tucson is having a decent recovery in jobs, according to Local Market Monitor. This is also an area that has been greatly affected by the housing boom and bust: Prices rose 60% during the boom, followed by a 34% drop. And while the University of Arizona normally provides stability in this area, the school is vulnerable to state budget cuts. At left, the entrance garden at Arizona State Museum on the campus of the University of Arizona at Tucson.

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Bottom 5, No. 4: Jacksonville, Fla.
Home prices have fallen dramatically in the past year and the housing boom and bust was felt severely in Jacksonville — where prices rose 58% during the boom, followed by a 33% drop. Even though the city has a diversified economy, the recession hit Jacksonville hard, with the number of jobs down about 8% over the year. At left, the John S. Sammis House (also known as the Arlington Bluff House) is a historic home in Jacksonville. It was added to the National Register of Historic Places in 1979.

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Bottom 5, No. 5: Sacramento-Arden-Arcade-Roseville, Calif.
The Sacramento area also suffered big home-price drops in the past year. During the housing boom, prices rose 35%, but plummeted 38% during the bust. While the government sector often provides stability to the local economy, it’s always vulnerable to state budget cuts. The number of jobs is down 11% over the year. At left, the tower bridge from the east side of the Sacramento River as it flows through Sacramento.