Based on current price, permit and employment data, markets nationwide are running at an average of 100 percent normal economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI) released today.
However, individual components of the LMI are at different stages of recovery. While employment has reached 98 percent of normal activity and home price levels are well above normal at 150 percent, single-family permits are running at just 53 percent of normal activity.
“Single-family permits have inched up slowly as builders continue to face supply-side headwinds such as ongoing price hikes in building materials, a lack of buildable lots and labor shortages,” said NAHB Chief Economist Robert Dietz. “A proposal by the Department of Commerce to impose a 20 percent duty on Canadian lumber would only exacerbate this problem and slow down the already modest growth in housing permits.”
“This is the first time the LMI has reached this key milestone and it shows how much our industry has improved since the depth of the Great Recession,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “However, we are concerned that single-family permits continue to trail the other components of the LMI and remain at only halfway back to normal.”
Despite these challenges, the housing market continues to gradually move forward. The LMI shows that markets in 183 of the approximately 340 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the first quarter of 2017. This represents a year-over-year net gain of 67 markets.
“Nearly three-quarters of all metros saw their Leading Markets Index rise over the quarter, a sign that the overall housing market continues to make broad-based gains,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report.
Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.76 - or 76 percent better than its historical normal market level. Other major metros leading the group include Austin, Texas; Honolulu; Provo, Utah; and San Jose, Calif. Rounding out the top 10 are Spokane, Wash.; Nashville, Tenn.; Los Angeles; Charleston, S.C.; and Salt Lake City.
Among smaller metros, Odessa, Texas, has an LMI score of 2.18, meaning that it is now at more than double its market strength prior to the recession. Also at the top of that list are Midland, Texas; Ithaca, N.Y.; Walla Walla, Wash.; and Florence, Ala.
The LMI examines metro areas to identify those that are now approaching and exceeding their previous normal levels of economic and housing activity. Approximately 340 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 permits and employment, both the 12-month average and the annual average during the last period of normal growth are also adjusted for the underlying population count. 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. In 2015, the Census Bureau revised the manner in which it obtains monthly counts of MSA single-family permits data. To maintain consistency within the LMI, NAHB excluded certain MSAs and improved comparability with previous years for the remaining areas. 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.