Small Markets Leading Way for 2014 Housing Recovery

Smaller metropolitan areas appear to be leading the country in a return to normal levels of economic and housing activity the National Association of Home Builders (NAHB) said today.  The associations Leading Markets Index, product in conjunction with First American Title Insurance, shows 54 metropolitan areas are currently operating above the LMI's baseline level and NBHA says "most of them" are what are considered small markets.  The index's nationwide score of .86 indicates that, based on current permits, prices and employment data, the nationwide market is running at 86 percent of normal economic and housing activity.

NAHB tracks 350 metro areas for its index which replaces the older Improving Markets list.  The index uses the same data bases as Improving Markets; employment information from the Bureau of Labor Statistics, home prices provided by Freddie Mac, but shifts the focus from identifying markets that have recently begun to recover to identifying areas that are approaching and exceeding previous normal levels of economic and housing activity. 

Each market is scored by taking its average permit, price, and employment levels for the past 12 months and dividing each by its 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.

Because the October government shutdown limited access to much of the needed data NAHB combined the November and December LMI reports.  The figures for November showed that 55 housing markets were operating at or above their last normal levels and the nationwide market was operating at 85 percent of normal growth.

"This index shows that most housing markets across the nation are continuing a slow, gradual climb back to normal levels," said NAHB Chairman Rick Judson.  "Policymakers must guard against actions that could impede or even reverse the modest gains of the past year."

Noting that smaller metros accounted for most of the 54 markets on the current LMI that are at or above normal levels, NAHB Chief Economist David Crowe said that "smaller markets are leading the way, particularly where energy is the primary economic driver. Nearly half of the markets in the top 54 are in the energy states of Texas, Louisiana, North Dakota, Wyoming and Montana."

"The fact that more than 125 markets on this month's LMI are showing activity levels of at least 90 percent of previous norms bodes well for a continuing housing recovery in 2014," said Kurt Pfotenhauer, vice chairman of First American Title.

Baton Rouge, La., tops the list of major metros on the LMI, with a score of 1.42 - or 42 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 Pittsburgh - all of whose LMI scores indicate that their market activity now exceeds previous norms.

Looking at smaller metros, both Odessa and Midland, Texas, boast 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 Casper, Wyo.; Bismarck, N.D.; and Grand Forks, N.D., respectively.