Nation Inches Closer to a Recovery

For the country as a whole, the NAHB/First American Leading Markets Index (LMI), released today, rose to .97 in the second quarter of 2016, .01 point higher than its upwardly revised level in the first quarter of 2016, .96, and .05 point higher than its level from one year ago, .92. The LMI is now .19 point above its low of .78 reached in March 2012. The index uses single-family housing permits*, employment, and home prices to measure proximity to a normal economic and housing market. The index is calculated for both the entire country and for 337 local markets, metropolitan statistical areas (MSAs). A value of 1.0 means the market (or country) is back to the last level of normality.

The improvement in the overall LMI Score reflects the different stages of recovery amongst its 3 components. Nationwide, house prices have surpassed normal levels, employment is near normal, but permits are the laggard. Over the quarter, the increase in the US Score reflected a .02 increase in the house prices sub-score, 1.41 to 1.43, and a .01 increase in the permits sub-score, .49 to .50. The employment sub-score was unchanged at .97. Over the past year, the LMI grew by .05 point as each component, house prices, +.08, permits, +.04, and employment, +.02, rose.

LMI map.2016_02

In addition, although the overall LMI Score for the nation as a whole is inching closer to 1.0, indicating a recovery, the distance from recovery in regions around the country varies. Regionally, 146 of the 337 markets, 43%, have an LMI Score that is greater than or equal to 1.0 and are considered normal, up from 116 in the first quarter of 2016 and 80 last year. Among the 3 components of the overall LMI, 326 markets have a house price subcomponent that has reached or exceeded 1.0, 2 more than the previous quarter and 4 more than the previous year. In the employment category, 78 markets are considered normal, 12 more than the number in the first quarter and 26 above the number from 12 months ago. Meanwhile, 60 markets have a permits component that has reached or eclipsed 1.0, 18 greater the number 3 months ago and 32 higher than the number of markets with this distinction 1 year ago.

However, recent growth has been widespread. In this release of the LMI, 86% of markets experienced a quarterly increase in their overall LMI Score and 91% recorded annual growth. In addition, about half, 52%, of markets saw an annual growth in their overall LMI Score that eclipsed the 0.5 point growth in the national LMI Score.

LMI map.2016_02g

* The single-family permits component of the LMI was revised in response to the redesign of the sample used by the US Census Bureau to measure the monthly counts of single-family permits. Metropolitan statistical areas (MSAs) where the monthly count of single-family permits were judged to have been significantly altered by the redesigned sample are now excluded from the list of markets followed by the LMI, a total of 27 markets. In addition, the count of single-family permits in 2015 for the remaining MSAs were adjusted for better comparability with previous years.

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