Housing Markets Continue to Recover at Modest Pace

December 2015

Markets in 79 of the approximately 360 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the third quarter of 2015, according to the National Association of Home Builders/First American Leading Markets Index released Nov. 5, 2015. This represents a year-over-year net gain of 17 markets.
    
The index’s nationwide score edged up to .93, meaning that based on current permit, price and employment data, the nationwide average is running at 93 percent of normal economic and housing activity. Meanwhile, 69 percent of markets have shown an improvement year-over-year.
    
“The employment metric of the LMI is making solid gains, with the number of metros that reached or surpassed their norms rising by 32 in a year,” said NAHB Chief Economist David Crowe. “Single-family permits keep inching forward, but remain at only 47 percent of normal activity, and continue to be the sluggish component of the index.”
    
Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.53—or 53 percent better than its last normal market level. Other major metros leading the list include Austin, Texas; Honolulu; Houston and Oklahoma City. Rounding out the top 10 are San Jose, Calif.; Los Angeles; Charleston, S.C.; Nashville, Tenn; and Salt Lake City.
    
Looking at smaller metros, both Midland and Odessa, Texas, have LMI scores of 2.0 or better, meaning that their markets are now at double their strength prior to the recession. Also at the top of the list of smaller metros are Manhattan, Kan.; Casper, Wyo.; and Grand Forks, N.D., respectively.
    
The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of economic and housing activity. More than 350 metro areas are scored by taking their average permit, price and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth. For single-family permits and home prices, 2000–2003 is used as the last normal period, and for employment, 2007 is the base comparison. The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics. An index value above one indicates that a market has advanced beyond its previous normal level of economic activity.