Housing Recovery Continues at Modest Pace

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Markets in 162 of about 340 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the third quarter, according to the NAHB/First American Leading Markets Index. This represents a year-over-year net gain of 73 markets.

The index’s nationwide score ticked up to 0.98, meaning that based on current permit, price and employment data, the nationwide average is running at 98 percent of normal economic and housing activity. Meanwhile, 91 percent of markets have shown an improvement year over year.

“Ongoing job growth, low mortgage rates and rising incomes are contributing to a firming housing market and economy,” said NAHB Chairman Ed Brady. “Though some areas are recovering faster than others, the overall trend is positive.”

“House prices continue to show the strongest recovery among the index components, with 327 markets, or 97 percent, returning to or exceeding their last normal levels. Meanwhile, 92 metros have reached or exceeded normal employment activity,” said NAHB Chief Economist Robert Dietz. “Single-family permits have edged up to 51 percent of normal activity, but still lag far behind the other gauges of the index.”

Baton Rouge, La., continues to top the list of major metros on the index, with a score of 1.68—or 68 percent better than its last normal market level. Other major metros leading the list include Austin, Texas; Honolulu; San Jose, Calif.; Provo, Utah; Spokane, Wash.; Nashville, Tenn.; Houston; Charleston, S.C.; and Los Angeles.

Among smaller metros, Odessa, Texas, is now at double its market strength prior to the recession. Also at the top are Midland, Texas; Ithaca, N.Y.; Walla Walla, Wash.; and Manhattan, Kan.

The index examines metro areas to identify those that are now approaching and exceeding their previous normal levels of economic and housing activity. The score is derived by taking their average permit, price and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth.

For permits and employment, both the 12-month average and the annual average during the last period of normal growth are also adjusted for the underlying population count. For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base 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 activity.

For historical information and charts, please go to nahb.org/lmi.