Markets in 75 of the approximately 360 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the second quarter of 2015, according to the National Association of Home Builders/First American Leading Markets Index (LMI) released today. This represents a year-over-year net gain of 13 markets.
The index’s nationwide score edged up to .92, meaning that based on current permit, price and employment data, the nationwide average is running at 92 percent of normal economic and housing activity. Meanwhile, 66 percent of markets have shown an improvement year-over-year.
“The markets are gradually improving and economic and job growth continue to strengthen, which bodes well for housing for the remainder of the year,” said NAHB Chairman Tom Woods, a home builder and developer from Blue Springs, Mo.
“Of the three elements in the LMI (house prices, permits and employment), house prices have had the broadest recovery, with 345 markets returning to or exceeding their last normal level,” said NAHB Chief Economist David Crowe. “Meanwhile, 64 markets have met or exceeded their normal employment levels. The housing permit level has made the least progress toward normality, with only 26 markets at or above their last normal level.”
“The number of markets on this quarter’s Leading Markets Index at or above 90 percent has reached an all-time high of 173, which represents nearly half of all markets nationwide,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report. “This is an encouraging sign that the housing and economic recovery continue to gain strength.”
Baton Rouge, La. continues to top the list of major metros on the LMI, with a score of 1.47 – or 47 percent better than its last normal market level. Other major metros leading the list include Austin, Texas; Honolulu; Houston; and Oklahoma City. Rounding out the top 10 are San Jose, Calif.; Los Angeles; Charleston, S.C.; Salt Lake City; and Nashville, Tenn.
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 Manhattan, Kan.; Grand Forks, N.D.; and Casper, Wyo., respectively.
The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of economic and housing activity. More than 350 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.
In calculating the LMI, NAHB utilizes employment data from the Bureau of Labor Statistics, house price appreciation data from Freddie Mac and single-family housing permits from the U.S. Census Bureau. The LMI is published quarterly on the fourth working day of the month, unless that day falls on a Friday -- in which case, it is released on the following Monday. For historical information and charts, please go to nahb.org/lmi