NAHB Leading Markets Data Bodes Well for 2014

Metropolitan areas considered leading markets on the National Association of Home Builders (NAHB)/First American index of that name increased to 59 this month, a net gain of one from the previous month.  The 59 areas have returned to or exceeded their last "normal levels" of economic activity as measured by employment levels, housing permits issued, and home prices.

The Leading Market Index (LMI) had a nationwide score of 87, unchanged from February.  This means that based on current permits, prices and employment data, the nationwide average is running at 87 percent of normal economic and housing activity.  Thirty-two percent of the 350 metro areas tracked by the index had higher scores this month than last and 84 percent have shown improvement over the past year.

"Despite the cold weather that has constrained economic and housing activity across much of the nation this winter, markets are returning to normal levels," said NAHB Chairman Kevin Kelly.  "As the job and housing markets continue to mend and the onset of spring releases the pent-up demand for new homes, this will bode well for the remainder of 2014."

A number of markets are poised to break through on the index according to Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, co-sponsor of the report.  Pfotenhauer said that 130 of the cities tracked are now at 90 percent or above of their previous norms.  This is "a positive trend to watch as the year progresses," he said.

Baton Rouge is the top major metro on the list with a score of 1.41 - or 41 percent better than its last normal market level. Other major metros whose LMI scores indicate their market activity now exceeds previous norms are Honolulu, Oklahoma City, Austin and Houston, Harrisburg and Pittsburgh.  Top smaller markets include Odessa and Midland, Texas, both of which have an index of 2.0, meaning they are at twice their previous economic highpoint.  Casper, Wyoming; Bismarck and Grand Forks, North Dakota round out the top five. 

"The strong energy sector is at the forefront of the recovery and centered in many small and mid-sized markets in Texas, Louisiana, North Dakota and Wyoming," said NAHB Chief Economist David Crowe. "In fact, these four states account for eight of the top 10 markets on the LMI and 45 percent of the markets that are at or above normal."

The metropolitan 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.  The period of 2000-2003 is used for single-family permits and home prices and 2007 is the base comparison for employment.  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. Any value above one indicates that a market has advanced beyond its previous normal level of economic activity.  Calculations are based on Census Bureau construction data, Bureau of Economic Statistics employment figures, and home prices from Freddie Mac.