The current list of Top 10 Turnaround Towns, developed using year-over-year comparative data from the fourth quarters of 2011 and 2010, begins with three of the nation’s top foreclosure markets that also achieved significant year-over-year median list price appreciation: Miami, FL, Phoenix, AZ, and Orlando, FL. They were followed by Fort Myers-Cape Coral, FL, which fell from third to fourth on the Realtor.com Top 10 Turnaround Town list in one quarter, and Sarasota-Bradenton, FL which rose from sixth to fifth. Ranking sixth was Boise City, ID, the only Rocky Mountain market to make the list. Four Florida markets rounded out the list including: Naples, Fort Lauderdale, Lakeland-Winter Haven and Punta Gorda.

The market rankings are based on year-over-year median price appreciation, reduction in year-over-year median age of inventory, and inventory reduction levels as observed on Realtor.com, as well as unemployment rates on a year-over-year basis. The Realtor.com Top 10 Turnaround Report is based on an algorithm that combines those four key measures with searches for properties on Realtor.com and the ratio of searches to listings in order to equalize markets by size. The resulting report reflects price changes that have taken place and gives weight to supply and demand dynamics that create continued progress towards growth and stability in future months.

The Realtor.com Top 10 Turnaround Towns, according to Fourth Quarter 2011 data are:

Miami, FL is leading the nation on the turnaround path. According to the Miami Association of Realtors, sales of existing single-family homes in the Miami Metropolitan Statistical Area (MSA) jumped 51 percent in the third quarter compared to a year ago.Miami has half as many properties in Realtor.com’s inventory of listings as it had a year ago, and the median age of inventory is down 30 percent from a year ago. Miami also continues to be a hot market for international buyers. In May, international clients purchased about 60 percent of the existing houses and condos and 90 percent of the newly built homes in Miami.[With inventory stabilized and median list prices regaining some of the 50 percent of value that was lost since 2006,] experts say one of the hardest hit foreclosure markets in the nation is on its way back.

Phoenix-Mesa AZ advanced two places on this Top 10 list between the third and fourth quarters of 2011. One of the areas hit hardest by foreclosures, Phoenix today still generates one foreclosure filing for every 317 housing units. Median list prices in Phoenix are up 15.38 percent on a year-over-year basis, but the market has to regain ground on what was lost in recent years. An uptick in demand driven by foreclosure bargains has contributed to a 27.47 year-over-year decline in the local median age of inventory. Unemployment in November was only 7.7 percent, below both state and national rates. With inventory in check, an improving local economy and growing demand, it’s only a matter of time before Phoenix returns to stability and lasting home value appreciation.

Orlando, FL secured its number three spot on the Realtor.com list of Top 10 Turnaround Towns as a result of progress made toward getting inventory back in balance with demand, suggesting the market may be stabilizing and turning a corner. The median age of inventory in Orlando on Realtor.com in the fourth quarter was down to 73 days, a 36 percent drop from a year ago and inventory was down 44 percent compared to a year ago. The Orlando MSA posted big declines in November foreclosure filings compared to the prior year and month. Lake, Orange, Osceola and Seminole counties posted 2,806 filings, or one in every 323 households. This is down 24 percent from November 2010, and nearly 36 percent down from the October 2011 filings. Fourth quarter 2011 year-over-year list prices on Realtor.com in Orlando rose 8.22 percent. Orlando leads the nation in the ratio of searches to listings on Realtor.com, a leading indicator that buyer demand may strengthen in the near future.

Fort Myers-Cape Coral, FL fell one rung to fourth place in the fourth quarter 2011 ranking on the list, but its recovery remains strong. Its median sale price has increased 20 percent over the past year, more than any other Florida market, though sales are down 13 percent.. The market led the nation in year-over-year median list price increases on Realtor.com (31.27%.) in the fourth quarter 2011, and ranked 14th in inventory declines that same quarter compared to a year ago. Only one in every 390 homes in the Fort Myers metro market received a foreclosure filing in December

Sarasota-Bradenton, FL ranks fifth in the nation on Realtor.com’s Top Turnaround Towns list for the fourth quarter 2011. Sales have been hopping in Sarasota and Bradenton this past fall, which is up 17 percent over last year. Median list prices were up 2 percent.] for the same period. This sales resurgence paralleled the drop in the available for sale inventory observed on Realtor.com, which just may place the remaining homes in range of a seller’s market. List prices on Realtor.com were up 10.78 percent in the fourth quarter 2011 compared to the fourth quarter 2010, and inventory is down 31 percent from a year ago.

Boise City, ID year-over-year for sale inventory observed by Realtor.com is down 40 percent, eighth best in the nation based on the year-over-year rate of decline. A key reason for the declining inventory is a reduction in foreclosures. A smaller inventory has helped drop the median age of inventory by 23.42 percent compared to a year ago. Smaller inventory is driving a median listing price increase of 13.77 percent, fifth best among Realtor.com’s 146 markets in the fourth quarter of 2011. Boise’s unemployment rate at 8.5 percent in November is better than the national rate.

Naples, FL is a newcomer to the Top 10 Turnaround Town list this quarter, powered by a 13.38 percent year-over-year increase in median list prices, seventh best in the nation overall, and a 35.94 percent reduction in for sale inventory. The median age of inventory in Naples is down 13.64 percent compared to a year ago. Demand in Naples, FL has been fueled by foreign buyers as the MSA attracts 6 percent of Florida’s international sales.While not everyone is bullish on Naples, sales are up and prices are moderating. The latest sales data from the Naples Board of Realtors confirms that the market is in the midst of change, but moving in the right direction. Sales of November single family homes are up 8 percent from November 2010 but sale prices are down 13 percent. Inventory is down 21 percent from a year ago.

Fort Lauderdale, FL has benefited from a shrinking inventory, which is down 41.63 percent year-over-year - sixth best (lowest) in the nation as observed by Realtor.com. Sales were up 22 percent in November and sale prices were up 18 percent year-over-year. List prices are up 7.84 percent over last year. However, like many other Florida markets, Fort Lauderdale, whose prices fell at least 46 percent from 2006 to 2010, still has a ways to go in part due to an unemployment problem affecting its housing market. But in November its unemployment rate fell to 9.4 percent.

Lakeland-Winter Haven, FL has observed a 9.09 percent increase in median list prices compared to a year ago. Its inventory has declined 35.28 percent since 2010 and its search-to-inventory ratio on Realtor.com, a measure of the number of buyers who are shopping for properties in the market, ranks fourth highest (best) in the nation in the fourth quarter 2011. As recently as a year ago, Lakeland-Winter Haven, FL was at the top of the national lists for foreclosure filings. But in recent months foreclosures in this MSA have been declining. In September, there were a total of only 86 distressed homes sold, compared to the 107 homes the previous month and 132 homes the previous year. Lakeland’s biggest hurdle on the road to recovery is its unemployment rate that dropped from 12 to 11 percent from the third to the fourth quarter, just a point over the state average.

Punta Gorda, FL returns to the Top 10 Turnaround Town list for the fourth quarter 2011 after it fell off the list the previous quarter. Like other Florida markets, it’s a market on the rebound, with both sale prices and sales up 11 percent year-over-year in November. Punta Gorda made it back to its 10^th place position on this list thanks to its29.25 percent year-over-year reduction in for sale inventory. But prices are just starting to turn around and must still make up for the 56.2 percent decline in home values observed since 2006. Currently Punta Gorda properties are selling at bargain prices, attracting both domestic and international buyers.

A fascinating new study soon to be released from Clear Capital , a leading real estate data provider, has useful answers to these questions as well as road signs you can use to track your local recovery. It tossed out some of the outdated views of recovery-like the assumption that home values can’t appreciate at a health rate amid significant numbers of foreclosures.

Equipped with a database that measures REO saturation by market, Clear Capital, has studied several of the nation’s most volatile markets, like Miami and Orlando, and analyzed the processes that brought crippled markets back to life.

Here are some of the signs likely to indicate that a price floor has been hit;

• Modest improvement in distressed home sale prices across all price tiers and declining levels of distressed sales as a percentage of total sales . A recovery in the distressed segment, regardless of the magnitude, creates a resistance to downward movement across all price tiers.
• Cash versus financed transactions are a key to investor participation. In Miami, 59 percent of all sales in 2011 were purchased with cash, as were nearly half (48 percent) of Orlando’s sales. This is a significant increase from the national average of 28 percent in November reported by the National Association of Realtors.
• Substantial improvement in values in their lower priced segments - below $70,000.

In an interview with Real Estate Economy Watch, Alex Villacorta, Clear Capital’s director of Research & Analytics, said the increased stability is occurring in the markets they have studied despite a backlog of foreclosures in the of properties in the foreclosure pipeline . RealtyTrac last week rated Florida third longest in the nation for its median foreclosure processing time, at 806 days.

“What’s happening in these markets is taking place without the backlog,” he said. “During most of 2011, Orlando had an average 50 percent REO saturation. Now it’s down to 25 percent and prices are increasing.”

Dr. Villacorta pointed out that to some degree REO sales are more seasonal than fair market sales. A lot of the markets he’s followed are reaching equilibrium at 30 percent of so of REO saturation.

Average days on market for properties over half a million averaged 222 days last week and has risen every week since August when DOM was at a year-low of 100 days, according to the latest monthly data from the Institute for Luxury Home Marketing. After falling since early July, inventories rose last week, reaching 23,416 homes in the ILHM market profile.

Thirty percent of listed properties have had a price decrease and even though the balance between supply and demand improved slightly in the first two weeks of the year, new listings slightly exceeded absorptions. Median price at $1,097,660 and median asking price per square foot at 333 were unchanged.

Top ten markets with the longest average days on market are Miami (308 days), Chicago (301), Detroit (271), Phoenix (264), New York (261), Orlando (253), Raleigh-Durham (252), Philadelphia (242), Charlotte (228) and Denver (226). Properties are moving fastest in Sacramento/Tahoe (173), San Diego (176) and Washington (176).

Overall existing-home sales rose 5.0 percent in December to a seasonally adjusted annual rate of 4.61 million from a downwardly revised 4.39 million in November, and are 3.6 percent higher than the 4.45 million-unit level in December 2010. The estimates from the National Association of Realtors are based on completed transactions from multiple listing services that include single-family homes, townhomes, condominiums and co-ops.

A new analysis from the senior economist at CoreLogic makes the case that declining household formation, vacant REOs and the shadow inventory of defaults and foreclosures in process together have created an oversupply of 1.1 million homes that is negatively impacting prices and will continue to do so for years-as long as it takes to reduce excess supply to levels that will not impact local values.

“Excess supply is important because it has implications for residential investment and therefore heavily impacts economic growth and home prices,” said CoreLogic’s Sam Khater in The MarketPulse, a new newsletter published by the data provider.

Khater argues that the net increase in housing units increased by an annualized 1.64 percent rate during the last five decades while household growth slowed from 1.54 percent to only 1 percent during the 2000s, and reached its rock bottom in 2008 and 2009 when household growth only averaged 0.5 percent. The decline reflected several factors: more women in the workforce, delayed marriage, lower formation rates for younger households and the recession.

Given the net increase in the supply and household growth between April 1, 2010 and November 2011, Khater estimates that the excess supply was roughly between 1.0 and 1.1 million units as of November 2011. Projections of roughly 600,000 net new housing units annually and an REO supply of 400,000 units a year will exacerbate the gap between supply and demand.

“It will take many years for the excess supply to be removed assuming no large policy intervention and the economy continues to grow slowly,” said Khater. “A large caveat to this estimate is the potential for policy intervention because, absent the REO supply, the excess supply would rapidly decline.”

In some markets with high foreclosure saturation rates, foreclosure inventories will cause temporarily price swings as inventories rise and fall, but even in these cities, in the long run, local economies will be the key.

That’s how Ingo Winzer sees the year ahead. In 1990 Winzer created Local Market Monitor because there wasn’t anything like it and developed of the National Review of Real Estate Markets, which analyzed conditions in 100 US Markets using such economic data as home values, employment growth, and population growth. More recently he created Equilibrium Home Prices, which have proved valuable in assessing real estate market risk during the last two economic cycles. He’s more interested in what makes local markets tick than broad national forecasts that may be irrelevant to local professionals, consumers and investors.

“The evidence is now pretty clear that a sustained economic recovery is underway, although housing markets won’t feel much benefit until next year. Consumers are in no particular hurry to buy a house because they don’t see home prices going up. Homeowners - as opposed to investors - would rather wait to pay a higher price than admit to their friends that they bought too soon. NO market has yet seen an increase in prices,” Winzer said in his January economic outlook.

“Local price increases of 6 percent are going to be difficult, but 3 to 4 percent are more likely. Some markets, like Atlanta, that are struggling with employment are going to have a hard time while others will do markedly better,” he told Real Estate Economy Watch.

Local Market Monitor is popular with investors who rent out their holdings because of its local data and forecasts on rents. Noting that more people today want to rent than buy, Winzer believes that many retirement and second home markets that have been flooded with foreclosures are going to take a long time–ten years or more-for prices to recover.

“In other markets where investors are active like Miami it’s not so bad because there is great demand,” he said.

Housing markets are going to continue to improve with job growth, even at just 2 percent a year, and economic growth will determine rental increases as well as home values. Overall rents are going to reflect population flows. “In a recession people tend to sit still. When things pick up, people are more willing to move to where there are jobs,” he said.

For long term investors, however, projecting rental cash flow ten or twenty years down the road is difficult even at the local level because of the sensitivity of rents to local economic conditions.

“My advice to the long term investor is to reduce risk by buying a more expensive property in a desirable neighborhood where you will be able to charge a premium rent. In lower cost properties, rents may become comparable to the monthly costs of owning a home. Renters in a lower cost property are more likely to buy than those in a higher cost property,” he advised.

However, though national prices will be flat, some 40 percent of the top 50 markets it tracks will stabilize in 2012, forecast Clear Capital, a premium provider of data and solutions for real estate asset valuation and risk assessment for large financial services companies.

Clear Capital today reported a 2.1 percent year-over-year decrease in 2011 that was bolstered by a stabilizing of prices in the latter half of the year and decreasing REO saturation.

“Overall, 2011 was a relatively quiet year for U.S. home prices compared to the last five years,” said Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. “With national prices down a little more than two percent for the year and sitting at their lowest point since 2001, our projections show that the current balance the market has found will continue through 2012.

“However, individual markets reacting to their local economic drivers exhibit a wide range of performance levels,” added Dr. Villacorta. “Although the national numbers suggest markets are flat, when looking at individual metro markets it turns out only 24 percent of them showed signs of stabilization in 2011, while the others are still moving more dramatically higher or lower. What’s most interesting is that the lower segments of appreciating markets are driving much of the current price growth. In places like Florida, which have historically been hard hit, we are now seeing considerable activity in lower-end properties as demand continues to heat up.”

U.S. prices declined -0.4 percent in December on a quarter-over-quarter basis, showing the markets giving back some of the gains of the summer buying season. This is the first cooling off after six monthly reports showing minimal quarterly gains. In fact, the most recent six months of the year (June - December) saw national home prices flat at -0.1 percent.

While these national quarterly numbers for December fell slightly, half of the major markets covered saw quarterly gains. Dayton, OH checked in at the top of highest quarterly performers with a gain of 5.0%. On the downside, Atlanta, GA showed consistent weakness as December’s lowest performing major market with a loss of -8.4 percent quarter-over-quarter.

In addition to the relatively flat home price performance, national REO saturation rates at the end of 2011 reached a new yearly low at 24.8 percent. REO saturation was volatile early in 2011, and showed consistent declines and stability toward the latter half of the year.

On the national level, 2012 is expected to play out much like the last half of 2011, with a very subtle price change. A minimal decline in the beginning of the year is expected to turn into a meager gain by year’s end. At a more granular level, half of the 50 major metro markets are expected to post gains for the year, and individual metros will experience the full gamut of price movement, from double-digit growth to double-digit drops.

Double digit volatility can be seen with the two strongest markets, including Orlando with a healthy price increase of 11.7 percent, and Bakersfield close behind with a projected 11.1 percent increase. The deepest drops come from Atlanta with an expected drop of -14.4 percent, and Los Angeles with a predicted drop of -10.3 percent.

Florida markets are expected to extend their impressive 2011 performances into 2012. Miami and Tampa are projected to be among the five highest performing metros with 8.8 percent and 7.4 percent growth, respectively, and Jacksonville is forecasted to gain 4.3 percent, placing it at a respectable eighth among the top metro markets. The exceptional growth in these markets can be a result of several factors, including being hit especially hard in the downturn. While fighting back, they remain significantly off their highs of 2006. Other factors in play in these markets include large increases in the values of their lower priced homes (near double-digits for all markets) when compared to higher priced segments of the market, and a high percentage of all cash transactions (51.8 percent) when compared to other metros. This indicates a high degree of investor activity as they look for bargains in the region, driving up demand.

Although the range of movement for U.S. prices stabilized through 2011, prices have settled at the lowest level since early 2001. The forecast for 2012 shows home prices starting with a dip in the first quarter, improving in the spring and summer buying season, and continuing to climb to 0.2 percent overall growth for 2012. Individual markets reacting to their local economic conditions continued to exhibit a wide range of performance levels in 2011, with only 12 of the top 50 metro markets (24 percent), returning year-over-year price movement that can be considered stable - price swings of less than 2.5 percentage points. This will continue into 2012, with only 40 percent being considered stable.

Home prices will end 2011 4.1 percent below a year ago for the second year in a row, as measured by the Federal Housing Finance Administration Home Price Index. Prices will lose a total of 8.2 percent over two years running but here is more bad news to come, according to Fannie Mae’s economists.

Fannie’s experts predict 2012 prices won’t be much better, falling an additional 2 percent during the first quarter and ending with a 0.89 percent year-over-year decline before home prices finally stabilize, turn the corner and slowly begin to improve the following year. They see prices increasing 2 percent in 2013.

The sour note on prices reflects recent price declines recorded by S&P/Case-Shiller and the CoreLogic house price index. “The recent decline in prices was mainly driven by distressed sales, as prices were up when distressed sales are excluded,” the economists said.

“Foreclosure activity seems likely to pick up as process issues are resolved, which should result in more foreclosure completions in 2012 (see Big Banks Created Foreclosure Boom). The Mortgage Bankers Association National Delinquency Survey showed that, after declining for three consecutive quarters, the foreclosure rate rose in the third quarter of this year. Job security will remain an obstacle to home purchases. If the European debt crisis deepens, it is likely that lending standards will be tightened further and mortgage spreads could widen substantially,” the Fannie Mae economists said.

“Home prices stabilized in the third quarter. However, they are poised to weaken in coming quarters, reflecting the winter season, an expected slowdown in economic activity, and a potential increase in distressed sales,” they said.

Counseled homeowners were at least 67 percent more likely to remain current on their mortgage nine months after receiving a loan modification cure, according to the Urban Institute. A small part of this effect is attributable to the impact of counseling on the size of monthly payment reductions. However, a significant part is attributable to other positive impacts of counseling, such as helping homeowners improve their financial management skills and assisting them in managing relationships with servicers.

The study also found that National Foreclosure Mitigation Counseling made it more likely that homeowners would receive a loan modification cure in the first place - increasing by at least 89 percent the relative odds of modification cures for counseled homeowners compared to non-counseled ones. The government’s Homeownership Affordable Modification Program amplified this positive effect. In the period before HAMP, 8 percent of homeowners receiving counseling assistance had modification cures, compared to 5 percent who did not receive counseling. Post-HAMP, 17 percent of homeowners receiving counseling assistance had modification cures, compared to 9 percent without.

HUD’s restored $40 million housing counseling funds will be distributed as grants to hundreds of programs and state housing finance agencies across the countries. Roughly $36 million will be used for helping homeowners avoid foreclosure, thwarting mortgage scams and teaching buyers how to purchase or rent a home. Another $4 million will be used for reverse mortgage counselors.

The Urban Institute’s three-year evaluation the National Foreclosure Mitigation Counseling program used a representative NFMC sample of 180,000 loans and a comparison non-NFMC sample of 155,000 loans to isolate the impact of NFMC counseling on loan performance through December 2010.

Are the structural changes that are reshaping Florida’s real estate markets a bellwether for the nation as a whole?

Jack McCabe, the outspoken Deerfield Beach, FL economist who foresaw the last decade’s real estate boom and bust now has a dire scenario for the nation that’s based on Florida’s experience.

“We are headed to a rental society and a slow- to no-growth economy unless the housing market, the foundation of American spending and a major part of U.S. gross domestic product, is revived,” he wrote in an October column in the Sarasota Herald-Tribune titled “The American Dream Recovery Program: a working solution that puts the American people first.”

In an interview with Real Estate Economy Watch, McCabe outlined the Florida trends that are changing the very nature of homeownership, and the fabric of community life in the state.

“Florida is becoming a different place to live. There is a big paradigm shift in how homeownership is viewed,” he said.

Foreclosures are still flooding Florida’s markets. The state’s judicial system has some 371,009 open foreclosure cases. Another 60,000 or so are in default. There are some 1.24 million potential foreclosures and short sales, McCabe estimates. The percentage of homeowners has dropped more in the last 10 years than any time in history.

McCabe advocates a program of systematic modifications beginning with principal write downs based on re-appraisals for current market value, a new tax credit for new homes and revived purchases of mortgage backed securities by Fannie and Freddie to keep families in their homes and foreclosures off the market. Without these steps, he believes, the transition of Florida communities from ownership to rental will come even faster.

Meanwhile, demand from the state’s traditional source of second home owners is drying up. Many of today’s retirees are thousands of dollars in debt on their home, can’t buy a retirement home, don’t want to tap the nest egg and they can’t move to Florida. So they just go down to Florida for a few months and rent, he said. Resort and retirement communities are transitioning from owner/occupant to rental.

In parts of Florida, foreign buyers are now a major part of the market. Some 80 percent of sales in Miami/Dade are to foreign nationals and over 70 percent are cash transactions. In other parts of the state, Canadians and Brits are major buyers. Properties are marketed abroad and McCabe knows of several South Florida condo developments where buyers must pay incrementally as the projects are built, foregoing the need for financing. “These are designed from the outset for foreign ownership,” he said.

“What’s happening in Florida’s retirement market is the tip of the iceberg. It’s a bellwether and we are already seeing the changes underway,” said McCabe, pointing to changing attitudes towards homeownership, especially among young people. “Young people are viewing homeownership negatively compared to other investments.”

However, McCabe is not giving up. “We’ve bailed out the banks, bailed out the automakers, bailed out the airlines, and in the past many other businesses considered important to the American economy,” he said in his Sarasota column.

“The American Dream Recovery Program is a working solution that puts the American people first. ”

Improvement was seen in every component of the index - job security, savings, debt, net worth and overall financial situation. The biggest improvement was in job security, a critical metric for the real estate economy. Those feeling less secure than a year ago fell from 28 percent to 18 percent, while 64 percent now feel the same level of job security, the highest recorded since polling began in Dec. 2010.

Despite the December improvement, the Financial Security Index is still below 100, which indicates that consumers are feeling less financially secure than one year ago. “2011 was not a year of progress in terms of consumers’ financial security,” said Greg McBride, CFA, senior financial analyst for Bankrate.com. “Each component - job security, savings, debt, net worth and overall financial situation - ended 2011 lower than where it was in January.”

The survey found that those under age 30 feel more secure than other age groups, while those age 50 and up feel less secure than younger age groups.

In terms of retirement, the under-30 set feels more comfortable than other age groups, while those age 50-64 and retirees feel less secure.

Americans with annual household income of $75,000 or more are more comfortable than others, while parents and households with income under $30,000 are, understandably, less comfortable than anyone else.

Households with annual income of $75,000 or more are most likely to report higher net worth than one year ago, while those with household income under $30,000 are most likely to report lower net worth.

Those under age 30 are most likely to report a better overall financial situation, while those age 50-64, households with annual income less than $30,000 and the unemployed are the groups most likely to report their overall financial situation as worse today than one year ago.