Eye On Housing
According to the NAHB/First American Leading Markets Index (LMI), 89 percent, 299 metropolitan statistical areas, recorded growth in their LMI Score over the second quarter of 2017. 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 337 local markets, metropolitan statistical areas (MSAs), as well as the entire country. A value of 1.0 means the three components have achieved a level of recovery that combined averages 1.0.
Of the 337 metro areas tracked by the LMI, 196 of them have an LMI Score that exceeds 1.0. In addition, 4 out of 5 metro areas have a LMI Score that exceeds .89. The number of metro areas where overall market activity has normalized was 20 more than the number in the first quarter of 2017, 176.
House prices continue to be a key driver of the LMI results. Of the 337 markets tracked by the LMI, house prices in 329 areas have normalized or are above normal. Meanwhile, in 109 markets employment conditions have normalized, while in 74 markets, single-family permits have normalized. However, growth in the number of markets where employment or permits have normalized has been rising. Over the past quarter, the number of markets where house prices reached at least normal rose by 1, but the number of areas where employment has normalized rose by 13 and the number of areas experiencing normalization in single-family permits rose by 9.
The LMI Score for the country as a whole has reached 1.02. However, at 1.52, only the house price component is above 1.0. Meanwhile, the employment component sits at .98 and single-family permits are currently at .54. One interpretation of these metrics is that the slower recovery in housing supply coupled with strong demand is contributing to house price appreciation. At the same time, analysis of individual markets reveals that in areas where the overall economic fundamentals are strongest, permits have normalized, but in areas where the overall recovery is not as strong, the recovery of single-family permits represents a key challenge.
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