The National Association of Home Builders (NAHB) and First
American Title Insurance Company today unveiled a new measure of housing market
health, their Leading Markets Index (LMI).
The LMI will replace the Improving Markets measure that NAHB and First
American have used to measure the recovery of the housing market since the 2007
The new and the old index both were based on three
indicators of economic activity; Bureau of Labor Statistics employment data,
Freddie Mac information on home prices, and U.S. Census counts of single-family
housing permits. However, where the earlier index sought to identify
markets that had recently begun to recover from the recession the LMI will
focus on those areas that are now approaching and exceeding their previous
normal levels of activity.
The LMI will look at more than 350 metropolitan areas,
scoring each by taking their average permit, price, and employment numbers for
the past 12 months and divided these by the areas annual average over the last
period of normal growth. In the case of both
single-family housing permits and home prices that would be 2000-2003. For employment 2007 is the base of 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
"This index helps illustrate how far the U.S. housing
recovery has come, and also how much further it has to go as we continue to
face some significant headwinds in terms of credit availability, rising costs
for lots and labor, and uncertainties regarding Washington policymaking,"
said NAHB Chairman Rick Judson.
This month the LMI found that housing markets in 52 metro
areas have now returned to or exceeded their pre-recession levels of
activity. The index's nationwide score
of .85 indicates that, based on current permits, prices and employment data,
the nationwide housing market is running at 85 percent of normal activity.
Baton Rouge, Louisiana tops the list of major metros on the LMI, with a score
of 1.41 - or 41 percent better than its last normal market level. Other major
metros at the top of the list include Honolulu, Oklahoma City, Austin and
Houston, Texas, as well as Harrisburg, Pennsylvania - all of whose LMI scores
indicate that their housing markets now exceed previous norms.
Looking at smaller metros, both Odessa and Midland, Texas, boast LMI scores of
2.0 or better, meaning that their housing markets are now at double their
strength prior to the recession. Also at the top of the list of smaller metros
are Casper, Wyoming; Bismarck, North Dakota; and Florence, Alabama,
"Smaller metros are leading the way to a housing recovery, accounting for
43 of the top 50 markets on the current LMI," observed NAHB Chief
Economist David Crowe. "This is very much in keeping with the results of
our previous index for improving markets, and is an indication of the extent to
which local economic conditions dictate the strength of individual housing
Kurt Pfotenhauer, vice chairman of First American pointed out that in 118
metros their housing markets show activity levels of at least 90 percent of
their previous norms, "A very encouraging sign of things to come," he said.