How to Make Construction Data Less Gloomy? Add in Employment and Prices!

Sure, the stronger employment numbers of late and the well-developed home price recovery haven’t translated to any meaningful improvements in building permits, but that’s an easy fix with the NAHB’s Leading Markets Index (LMI)!   The LMI factors in not only single family construction permits,  but also home prices, andrnemployment to determine how various housing markets are faring compared to historical norms.  </p

Fifty-six metropolitan areas wererndesignated as Leading Markets in the latest review conducted by the NationalrnAssociation of Home Builders (NAHB)/First American Title.  This means that those areas have returned tornor exceeded their last normal levels of economic and housing activity (considered to be 2000-2003).  One year earlier there were 49 leadingrnmarkets designated.</p

The Leading Market Index for thernnation as a whole was scored at .89. This means that the country is on averagernrunning at 89 percent of normal economic and housing activity.  Seventy-nine of the 350 metropolitan areasrntracked by the Index have shown year-over-year improvements.   </p

Permitting data comes from the U.S. CensusrnBureau/Department of Housing and Urban Development and home price informationrnfrom Freddie Mac.  Employment data fromrnthe Bureau of Labor Statistics is compared to 2007 as the base year.  The three components are then averaged tornprovide an overall score for each market and a national score is calculatedrnbased on national measures of the three metrics. An index value above onernindicates that a market has advanced beyond its previous normal level ofrneconomic activity.</p

NAHB Chief Economist David Crowe said that single family permits are thernlagging component of the index, reaching only 43 percent of normal on arnnational level. “The big bright spot is employment, where the number of metrornareas having reached or exceeded their norms grew from 26 to 46 in a year,” hernsaid.</p

Baton Rouge continues to top the major market LMI with a score of 1.39 – orrn39 percent better than its last normal market level. Other large metros leadingrnthe list include Honolulu, Oklahoma City, Houston, and Austin.</p

“In the 22 metros where permits are at or above normal, the overall indexrnindicates that these markets have fully recovered,” said Kurt Pfotenhauer, vicernchairman of First American Title Insurance Company.  “This finding shows the impact that an uptickrnin permits can have on the overall health of markets.” <br /<br /Among smaller metros, both Odessa and Midland, Texas, boast LMI scores of 2.0rnor better, meaning their markets are now at double their strength prior to thernrecession.  Also scoring well among smallerrncities are both Bismarck and Grand Forks, North Dakota and Casper, Wyoming.

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