Housing Recovery Continues at Modest Pace

April 2016

Markets in 117 of the approximately 340 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the fourth quarter of 2015, according to the National Association of Home Builders/First American Leading Markets Index released Feb. 25, 2016. This represents a year-over-year net gain of 52 markets.
    
The index’s nationwide score inched up to .94, meaning that based on current permit, price and employment data, the nationwide average is running at 94 percent of normal economic and housing activity. Meanwhile, 90 percent of markets have shown an improvement year-over-year.
    
“Housing markets are strengthening gradually as the economy firms and job creation continues,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “While some areas are recovering at a faster rate than others, the large majority of metros are moving in the right direction.”
    
“Among the LMI components, house prices continue to show the most extensive recovery, with 322 markets having returned to or exceeded their last normal levels. Meanwhile, 76 metros have reached or exceeded normal employment activity,” said NAHB Chief Economist David Crowe. “Single-family permits are edging forward, but remain at only 48 percent of normal activity.”
    
“The number of markets on this quarter’s Leading Markets Index at or above 90 percent has reached 217—almost 65 percent of all markets nationwide,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report. “This demonstrates that the breadth of the housing recovery continues to grow.”
    
Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.52, or 52 percent better than its last normal market level. Other major metros leading the list include Austin, Texas; Honolulu; Houston; and San Jose, Calif. Rounding out the top 10 are Oklahoma City; Los Angeles; Nashville, Tenn.; Salt Lake City and Charleston, S.C.
    
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 Wheeling, W.Va.; Manhattan, Kan.; and Walla Walla, Wash., respectively.
    
The LMI identifies those areas that are now approaching and exceeding their previous normal levels of economic and housing activity. Approximately 340 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.