The 5 Hottest Real Estate Markets for 2014

It's no secret the housing market in the United States has been heating up over the past couple of years, with most markets up by double-digit percentages in the past year alone. Most industry experts are projecting the gains to continue in 2014, but at a slower pace than in recent years.

According to Zillow, the average home value in the U.S. is projected to rise by an additional 4.6% over the next year, but there are some markets where double-digit gains are expected to continue. Here is a breakdown of some of the markets that are expected to be 2014's hottest.

The top five are as follows.

5. Yuba City, Calif. -- Projected gains of 20.3% in 2014

Source: Jimmy Emerson.

This Northern California city is in Sutter County and has a population of just fewer than 65,000. Yuba City is home to Sunsweet Growers, the largest dried-fruit processing plant in the world, which has earned the city the nickname of "prune capital of the world." 

One possible reason for the drastic climb in housing prices is the rapidly improving employment situation in the area. Yuba City has a much higher unemployment rate than the national average, but it has improved from 16.4% to 13.9% over the past two years. When more people are employed, they have more money to buy a house. Makes sense.

4. Modesto, Calif. -- 21%

Modesto is home to over 200,000 people and is located about 90 miles east of San Francisco. Modesto has a very large agricultural industry and is home to the largest winery in the world, the E & J Gallo Winery. Just like Yuba City, Modesto has an above-average unemployment rate of about 10.2%, which has dropped significantly from over 15% in 2011. 

3. Merced, Calif. -- 21.4%

A little further west than Modesto, Merced is known as the "Gateway to Yosemite." This city of about 80,000 people is growing at a rapid pace, which may be the reason for the rapidly rising home prices.

The above-average population growth has attracted several major retail chains and resulted in Merced's selection as the location for the newest University of California campus. Merced suffered one of the greatest price collapses in the country after the housing bubble burst, and prices are still well below their pre-collapse levels.

2. Stockton, Calif. -- 22.7%

Source: Alden Jewell. Stockton in the 1960s.

This city of 300,000 people is the second-hottest real estate market in the country for 2014. Stockton was one of the hardest-hit markets in the country by the collapse of the sub-prime lending market in 2007, and it had the highest foreclosure rate in the nation. In 2007, one of every 30 homes in the city went into foreclosure.

The median price of a Stockton house fell by 44% in 2007, and by an additional 39% in 2008. Stockton residents should be able to breathe a little easier by the end of 2014, but they are still a long way from even.

1. Vallejo, Calif. -- 23.9%

This city of about 116,000 people is part of the San Francisco Bay Area. Vallejo has had more than its share of financial troubles in the past, having declared Chapter 9 bankruptcy in the wake of the financial crisis in 2008. The city's unemployment rate has dropped from 15% to 10.1% since emerging from bankruptcy in 2011, which is certainly helping the surge in home prices.

Source: Arkyan. Map of Vallejo, Calif.

Bonus:

6. Orlando, Fla. -- 10.1% (The hottest market outside of California)

I felt the need to include at least one city from outside of California, and Orlando is projected to post the largest increases among the other 49 states. Florida was one of the worst-hit states by the housing meltdown, and Orlando was hit particularly hard, which is part of the reason Florida's markets have rebounded so well in the past few years. The median home price in Orlando fell from more than $264,000 to below $100,000 from 2007 to 2010, and has since gained back more than 20%, but it's still very far from where it was.

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