NAHB Replaces Improving Markets Index; Smaller Metros Lead

The National Association of Home Builders (NAHB) and First American Title Insurance Company today unveiled a new measure of housing market health, their Leading Markets Index (LMI).  The LMI will replace the Improving Markets measure that NAHB and First American have used to measure the recovery of the housing market since the 2007 downturn.

The new and the old index both were based on three indicators of economic activity; Bureau of Labor Statistics employment data, Freddie Mac information on home prices, and U.S. Census counts of single-family housing permits.   However, where the earlier index sought to identify markets that had recently begun to recover from the recession the LMI will focus on those areas that are now approaching and exceeding their previous normal levels of activity. 

The LMI will look at more than 350 metropolitan areas, scoring each by taking their average permit, price, and employment numbers for the past 12 months and divided these by the areas annual average over the last period of normal growth.  In the case of both single-family housing permits and home prices that would be 2000-2003.  For employment 2007 is the base of 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.

"This index helps illustrate how far the U.S. housing recovery has come, and also how much further it has to go as we continue to face some significant headwinds in terms of credit availability, rising costs for lots and labor, and uncertainties regarding Washington policymaking," said NAHB Chairman Rick Judson.

This month the LMI found that housing markets in 52 metro areas have now returned to or exceeded their pre-recession levels of activity.  The index's nationwide score of .85 indicates that, based on current permits, prices and employment data, the nationwide housing market is running at 85 percent of normal activity.

Baton Rouge, Louisiana tops the list of major metros on the LMI, with a score of 1.41 - or 41 percent better than its last normal market level. Other major metros at the top of the list include Honolulu, Oklahoma City, Austin and Houston, Texas, as well as Harrisburg, Pennsylvania - all of whose LMI scores indicate that their housing markets now exceed previous norms.

Looking at smaller metros, both Odessa and Midland, Texas, boast LMI scores of 2.0 or better, meaning that their housing markets are now at double their strength prior to the recession. Also at the top of the list of smaller metros are Casper, Wyoming; Bismarck, North Dakota; and Florence, Alabama, respectively.

"Smaller metros are leading the way to a housing recovery, accounting for 43 of the top 50 markets on the current LMI," observed NAHB Chief Economist David Crowe. "This is very much in keeping with the results of our previous index for improving markets, and is an indication of the extent to which local economic conditions dictate the strength of individual housing markets."

Kurt Pfotenhauer, vice chairman of First American pointed out that in 118 metros their housing markets show activity levels of at least 90 percent of their previous norms, "A very encouraging sign of things to come," he said.