Top Housing Markets in 2013

We've been talking about the housing rebound for a while now, and there's no doubt that the market really picked up momentum last year. Now market tracker Zillow is predicting a 3.3% increase in the U.S. housing market in 2013, but the big picture is what will be changing.

Some cities are sure to see huge surges in home values, and these are likely going to be the cities that took the biggest hits when the housing bubble burst. Other cities, meanwhile, will see values fall.

But if this seems like a bad thing, it's not. Actually, it signifies recovery, Zillow's chief economist Stan Humphries told the Street:

“Real estate has returned to a more-normal condition of lots of small, local markets instead of one big national one.”

Zillow compiled a list of major U.S. cities that are likely to see home values grow the most through 2013. The cities include ones that have lost the most value during the recession, ones that allow non-judicial foreclosure (where long court processes are not required), and ones where many homeowners owe more than their homes are worth.

And California is the place to look.

Here are the top five cities expected to post gains this year:

5. Los Angeles, California

Since 2006, L.A. Homes lost roughly 38%, according to Zillow. Today, they still haven't fully recovered, with an average value of $414,900 compared to 2006's $619,200.

But this year will be a solid year for L.A. home values. Zillow predicts a 7.3% gain in housing prices over the year.

4. San Francisco, California

San Francisco also has the potential to gain 7.3% this year. Though home values are still 26% under the 2006 peak on average, prices have been gaining.

The area also has a lot of economic potential due to its large technology sector. Major tech companies in the area attract people with jobs, and many of these new employees are also potential homeowners.

3. Phoenix, Arizona

This city was hit hard during the recession, with median home values falling a whopping 56% from 2006 levels.

But the turnaround has been promising; since the end of the summer in 2011, homes have gained 27% in value.

A number of homeowners are underwater, owing more than their homes are worth, and because of this they're unable to sell, resulting in a shortage of homes on the market. This has been pushing up prices as demand gains, and Zillow predicts another 8.5% in gains this year.

2. Sacramento, California

Zillow estimates 11.9% in home value gains this year for Sacramento. The city was hit almost as hard as Phoenix during the recession, with values falling 52.3%.

California expects a budget surplus for this year – the first after years of major budget issues – and since Sacramento is the state's capital, this puts the ball in the city's court.

1. Riverside, California

Riverside saw home values plummet 70% during the recession. But that bust couldn't break the city, as it's now ranked as the top market for growth this year.

Home prices will likely jump 12.5% this year in Riverside, Zillow says, as prices and buying continue the rally that began just over a year ago.