Small Markets are Leading Recovery NAHB Says

Smaller markets and those with a strong energy sector are recovering faster than the nation as a whole the National Association of Home Builders (NAHB) said today.  NAHB's January Leading Markets Index (LMI) produced in conjunction with First American Title Insurance shows that 56 of the approximately 350 metropolitan areas tracked returned to or exceeded their last normal levels of economic and housing activity.  Forty-eight of them have populations of under 500,000.

The LMI, which replaces the Improving Markets Index used by NAHB during most of the recovery, shifts the focus from identifying markets that have recently begun to recover to identifying those that are now approaching and exceeding their previous normal levels of economic and housing activity.  Areas are scored by taking their average home construction permit, home 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.

The 56 areas are a net gain of two metro areas from December.  The index's nationwide score of .86 indicates that, based on current permits, prices and employment data, the nationwide average is running at 86 percent of normal economic and housing activity.

"Forty-five percent of metro areas are recovering at a faster pace than the nation as a whole, with smaller markets leading the way," said NAHB Chief Economist David Crowe. "Of the 56 markets that are at or above normal levels, 48 of them have populations that are less than 500,000, and many of these local metros are fueled by a strong energy sector, which is producing solid job and economic growth."

Baton Rouge was at the top of the list of major metros with a score of 1.42, indicating it has improved by over 42 percent from its last normal market level.  Honolulu, Oklahoma City, Austin, Houston, Harrisburg and Pittsburgh all have LMI scores that indicate their market activity now exceeds previous norms.

Among smaller metros, both Odessa and Midland, Texas have scores of 2.0 or better, that is they are now at double their strength prior to the recession. Also at the top of the list of smaller metros are Casper, Wyoming and Bismarck and Grand Forks, North Dakota.

"More than 35 percent of all the markets on this month's LMI are operating at a capacity of 90 percent or better of previous norms, which is a good sign that the housing recovery will continue to pick up steam in 2014," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company.

"More markets are slowly returning to normal levels and we expect this upward trend to continue as an improving economy and pent-up demand brings more home buyers back into the marketplace," said NAHB Chairman Rick Judson.  "Policymakers must be careful to avoid actions that would harm consumer confidence and impede the ongoing recovery."