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The small towns where home price gains are big

With nearby Facebook driving up incomes, home prices in Menlo Park, Calif., are on the rise.
With nearby Facebook driving up incomes, home prices in Menlo Park, Calif., are on the rise.AP file

The advantages of small-town living are well known to Americans — and not just because of Norman Rockwellesque clichés about values, neighborliness and pace of life. These days, most prosperous small towns are bedroom communities with good public schools and easy commutes to large employment centers.

Have small-town housing markets bounced all the way back to prehousing crisis levels? Answer: not just yet. But based on data provided by Zillow, a leading provider of real estate listings and market data, 24/7 Wall St. was able to identify small towns that have demonstrated strong signs of a healthy recovery in the past year.

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Some of the large year-over-year increases are the result of a market correction, believes Louise Keely, senior vice president at Nielsen’s The Demand Institute, a leading provider of consumer behavior data. “Prices went down too much, and now the market is moving back to an equilibrium,” Keely told 24/7 Wall St. “I would expect a leveling out, and housing price growth nationally is going to be in the low single digits.”

Small towns will stay competitive with larger nearby communities, Keely said. “Small towns tend to have lower home prices than nearby urban areas, and that will make them more attractive for households with weaker household balance sheets than they were seven to 10 years ago.”

As part of the greater Phoenix metro area, Florence suffered during the recent housing bust but is now staging a significant comeback. However, according to Professor Mark Stapp, who runs the Masters of Real Estate Development program at Arizona State University’s W.P. Carey School of Business, the recovery is a bit misleading.

“We lost so much value in housing that the increase in price is driven off of a very low base,” said Stapp. “What you’re seeing is increases in prices off of a historic low — so it’s a bit deceiving because it’s not a sustainable growth rate. But I don’t think you’re going to see prices fall.”

No doubt small towns will see their fair share of the recovery. A study by the National Association of Home Builders indicates that builder confidence is the highest it has been since June 2006. The home builders association projects increased demand for new homes, which not only addresses buyer demands, but also the additional housing stock helps slow the rate of home price increases.

24/7 Wall St.: The 10 states with the strongest housing markets

24/7 Wall St. identified the 10 small towns with the fastest rising housing prices based on Zillow housing data. We defined small towns as having between 30,000 to 50,000 residents. To be considered, the small town had to have the highest year-over-year growth through August 2012. Because several metropolitan statistical areas included more than one small town with the fastest growing housing market, we only considered the small town in each statistical area with the fastest growth.

These are the small towns with booming housing markets.

1. Florence, Ariz.

  •  One-year home price change: 21.8 percent
  •  Metropolitan statistical area: Phoenix, Ariz.
  •  Population: 30,880
  •  Median home value: $115,300

Home prices in Florence are recovering amid surging demand from an influx of new residents in the area. The town’s population has risen by nearly 50 percent since 2010. During the downturn, new home construction declined sharply in the greater Phoenix area, a factor that helped to constrain home prices during the housing crisis. Despite the 21.8 percent increase in the past year, home values are still more than $35,000 under the national median.

2. Northville Township, Mich.

  •  One-year home price change: 15.7 percent
  •  Metropolitan statistical area: Detroit, Mich.
  •  Population: 35,300
  •  Median home value: $268,700

This upper-middle class Detroit suburb is buoyed by a high-performing school district that helped sustain property values amid challenging economic times for Michigan. The school district tips its cap to its constituent demographics. The majority of the community is employed in middle and upper management positions with the auto industry and subsidiaries or professional occupations. Home prices in many Detroit suburbs have grown in value in the past year, including such larger areas as West Bloomfield and Utica. Northville is one of the more expensive communities among them. The median home value in the town exceeds that of homes in the average Detroit neighborhood by more than $110,000.

3. Saratoga, Calif.

  •  One-year home price change: 14.4 percent
  •  Metropolitan statistical area: San Jose, Calif.
  •  Population: 31,102
  •  Median home value: $1,620,200

Local lore has it that IPOs by LinkedIn, Facebook, Zynga and other tech companies have given a strong push to housing markets in Silicon Valley, which encompasses much of the Peninsula north of San Jose. There appears to be increasing competition among buyers vying for a constrained housing supply in this upscale suburb. The estimated home value in Saratoga — $1.6 million — is the second highest in the country for any town or city with at least 30,000 residents, behind only Beverly Hills.

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4. Kendall West, Fla.

  •  One-year home price change: 13.7 percent
  •  Metropolitan statistical area: Miami-Fort Lauderdale, Fla.
  •  Population: 39,742
  •  Median home value: $101,800

Housing prices in this mostly working-class and unincorporated Miami suburb have shown resiliency in the face of a housing downturn that affected much of the state in recent years. Home prices here have managed to outpace state averages and double since 2000, despite the downturn. Despite a nearly 14 percent growth in home prices in the past year, estimated home prices barely exceed $100,000, and are roughly $50,000 less than the U.S. median home price for August.

5. Menlo Park, Calif.

  •  One-year home price change: 13.4 percent
  •  Metropolitan statistical area: San Francisco, Calif.
  •  Population: 40,795
  •  Median home value: $1,169,600

This affluent suburb on the edge of Palo Alto, Calif., is home to many venture capital companies that are helping to fuel the current IPO and tech boom in Silicon Valley. The biggest local employer is Facebook. Although the social network’s post-IPO performance has failed to meet expectations, some of the wealth it generated appears to have stayed close to home. The average home price in the suburb is more than 7.5 times the U.S. median.

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