The Zillow Market Health Index, which is measured on a scale from 0 to 10, is formed from 10 different metrics that account for changes in home values, how long properties stay on the market, foreclosures, delinquencies and negative equity. If a particular area has a value of eight on the Market Health Index, the region is deemed to be healthier than 80% of all comparable areas covered by Zillow.
In October, among the country’s top 30 largest metropolitan markets covered by Zillow, San Jose, Calif., earned the top spot on this MHI with a score of 9. The other three Golden State cities that had a value above 8 were San Francisco, Los Angeles and San Diego.
Denver was the only other market that had an MHI above 8 at 8.1. The top 10 was rounded out from sixth to tenth by Boston, Pittsburgh, Portland, Ore., New York and Sacramento.
“The housing market is complex, and while individual statistics can be useful in describing a single aspect of a given market, one number on its own can’t tell the full story,” said Stan Humphries, chief economist for Zillow. “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.”
Rapid home value appreciation in the West is currently having a very positive effect for this score. Additionally, the greatest decline in the number of underwater homeowners since their peak was found in San Jose and San Francisco, down 66.4% and 59.6%, respectively.
Despite the declines, through the third quarter, San Jose still had 7.6% of homeowners with mortgages in negative equity through the third quarter, while Los Angeles’ rate was 13.2%, San Francisco was 12.4% and San Diego was 14.7%, Zillow says.
Meanwhile, Humphries warned that a surge in home prices could cause affordability issues in these markets down the road, “leading to potentially unhealthy conditions in the future.”