Returning to Normal

Returning to Normal

Posted 04/17/2014

Approximately 17 percent of the nation’s 350 metro markets are approaching or exceeding their previous normal levels of economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI), released earlier this month. The figure, which amounts to 59 markets, represents a net gain of 11 metros year over year.

The national index score ticked up to .88 from a March reading of .87, meaning that based on current permit, price and employment data, the market as a whole is running at 88 percent of normal economic and housing activity.  Additionally, 28 percent of metro areas experienced a score improvement this month and 83 percent have witnessed increases over the past year.

The LMI is different from the NAHB’s previous gauge, known as the Improving Markets Index, in that it shifts the focus from identifying markets that have recently begun to recover to pinpointing areas that are now approaching and exceeding their previous normal levels of activity. For single-family permits and home prices, 2000-2003 is used as the benchmark, and for employment, 2007 is the base comparison.

The score is achieved by dividing each metro area’s average permit, price and employment levels for the past 12 months by their annual averages over the last period of normal growth. The three components are then averaged to provide an overall score for each market. A national score is calculated based on national measure of the three metrics. An index value above one indicates that a market has advanced beyond its previous normal level of economic activity.

Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.42, or 42 percent better than its last normal market performance. It’s joined at the top of the list by Honolulu, Oklahoma City, Austin and Houston, Texas, as well as San Jose, Calif., and Harrisburg, Pa.

“Stronger employment numbers seemed to be the driving force this month – an important factor to the recovery of our economy,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., the LMI report’s co-sponsor.