The latest National Association of Homebuilders/First American Leading Markets Index (NAHB/LMI) released Thursday found that markets in 63 out of 351 metropolitan areas nationwide (about 18 percent) matched or exceeded their normal levels of economic and housing activity in Q4 2014, according to an announcement from NAHB.
The index ticked slightly upward in Q4 to .90, one point higher than Q3's revised figure of .89. The number of markets at or above their normal levels in Q4 increased from 60 in the previous quarter and from 52 in the same quarter a year earlier.
"The markets are improving at a consistent pace," said NAHB Chairman Tom Woods, a home builder from Blue Springs, Missouri. "A growing economy and rising consumer confidence should help drive the release of pent-up demand in 2015."
The LMI uses three indicators to determine a market's proximity to normal: single-family housing permits, home prices, and employment. Permits and prices are compared with the national averages from 2000 to 2003, while employment is compared with 2007 numbers. A score of one means the market is on the same level as the last normal period, or base period; above one means the market is above its base, and a score below one means the market has not quite reached the levels of its last normal period.
"The U.S. level of .90 means the U.S. economic and housing market is 90 percent of the way back to normal using the same base levels," said David Crowe, Chief Economist for NAHB.
Out of major metros, the one with the top LMI rating in Q4 was Baton Rouge, Louisiana at 1.41, meaning it is 41 percent above its last normal market level. Austin, Texas; Honolulu, Hawaii; Houston, Texas; and Oklahoma City had the second through fifth best LMI levels, respectively. Some smaller metros registered LMI ratings of greater than 2.0 for Q4, led by Midland and Odessa, Texas; Grand Forks, North Dakota; Bismarck, North Dakota; and Casper, Wyoming. A rating of 2.0 or more means the market is more than double its strength prior to the recession.
"More than 80 percent of all metros saw their Leading Markets Index increase or hold steady over the quarter, a strong indicator that the overall housing market is making headway," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report.
The indicator that was most recovered in Q4 was home prices, with an index value of 1.31, meaning prices are 31 percent higher than their early 2000s averages. Employment rated at .95 in the index, meaning that the labor market nationwide is 95 percent back to its 2007 level. The index found that the housing permit measure is the weakest of the three indicators in Q4 with a rating of .44. Only 22 out of 351 markets have returned to their levels of their early 2000s single-family housing permit activity.
"Markets in energy regions have recovered the fastest and are the ones better now than at their last normal levels," Crowe said. "The markets with the longest road left are those that collapsed the most and have not had the employment recovery enjoyed by the country as a whole. The bottom two quintiles of markets are heavily concentrated in the industrial Midwest and the Sand states of California, Nevada, Arizona and Florida. All are improving but have a longer distance to cover."