Eye On Housing
According to the NAHB/First American Leading Markets Index (LMI), 82%, 277 metropolitan statistical areas, recorded growth in their LMI Score over the fourth quarter of 2017 compared to a year ago. 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, 195 of them have an LMI Score that exceeds 1.0. In addition, 4 out of 5 metro areas have a LMI Score that exceeds .90. The number of metro areas where overall market activity has normalized was the same as in the third quarter of 2017. Compared to a year ago, the number is up by 25 metro areas.
House prices continue to be a key driver of the LMI results. Of the 337 markets tracked by the LMI, house prices in 333 areas have normalized or are above 1.0. Meanwhile, in 128 markets employment conditions have normalized, while in 62 markets, single-family permits have normalized.
Over the quarter, employment saw the largest number of metro areas normalizing, an increase of ten from 118 metro areas in the third quarter of 2017 to 128 in the fourth quarter of 2017. Nationwide, employment growth continued in January 2018. The number of areas where house prices normalized climbed by one to 333. However, house prices have normalized across the vast majority of metro areas, 98.8%. The permits category recorded a slight decline in the number of metro areas normalizing over the quarter, falling by five to 62.
Over the past year, the expansion in the labor market recovery across the localities also led the other two categories, as an additional 25 metro areas normalized during this time period. The number of metro areas where house prices normalized increased by 5. The number of areas where permits normalized held steady for the year.
The LMI Score for the country as a whole reached 1.04. However, at 1.58, only the house price component is above 1.0. Meanwhile, the employment component sits at 0.98 and single-family permits are currently at 0.56. One interpretation of these metrics is that the slower recovery in housing supply coupled with strong demand is contributing to house price appreciation.
The U.S. LMI Score rose by .05 point from 0.99 to 1.04 over the past year. The map below shows local areas that saw growth in their LMI score that exceeded the increase in nationwide LMI. Many of the faster growing markets over the past year were located across the South and West regions of the country. In contrast, there were fewer faster growth markets in the Midwest and in the Northeast regions of the country.
Good stuff but why was the period 2000 to 2003 picked as the “normal period” for permits? It seems that was a higher than normal period when compared to long term averages.