Now that the chaos of the boom and bust is coming to an end, housing markets are beginning to reestablish themselves via their underlying economics, according to Robert Denk, assistant vice president for forecasting and analysis at the National Association of Home Builders.
"The housing market is now being driven by local economic fundamentals," said Denk. "Energy states and those driven by agricultural commodities are seeing their housing markets turn around the fastest."
States that fell the farthest during the downturn — California, Florida, Nevada and Arizona — bottomed out as much as 10% to 20% of normal production, but are showing indications of a turnaround. In many of these markets, home prices are returning to normal and near-normal levels. This is due, in large, to an easing of foreclosure rates.
"While these former bubble states still have a long way to go to get back to normal, they have been replaced by the industrial Midwest, which is facing weakness in manufacturing, as the laggard in the recovery," said Denk.
The energy producing states are expected to return to normal production levels by the end of next year, according to Denk. These states include North Dakota, Texas, Oklahoma, Wyoming, Montana and Louisiana.
Denk noted that Iowa, a farm belt state supported by agricultural commodities, is also approaching a faster return to normal conditions.
By the end of 2014, the top 20% of states will be at or above 87% of normal production, compared to the bottom 20%, which will still be below 60%, according to Denk.