Home Builders Index Shows Permits Still Lagging

WASHINGTON — Based on current price, permit and employment data, markets nationwide are running at an average of 100% normal economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index released May 4.

However, individual components of the index are at different stages of recovery. While employment has reached 98% of normal activity and home price levels are well above normal at 150%, single-family permits are running at just 53% of normal activity.

“Single-family permits have inched up slowly as builders continue to face supply-side headwinds such as ongoing price hikes in building materials, a lack of buildable lots and labor shortages,” says the NAHB’s chief economist, Robert Dietz. “A proposal by the Department of Commerce to impose a 20% duty on Canadian lumber would only exacerbate this problem and slow down the already modest growth in housing permits.”

The Index shows that markets in 183 of the approximately 340 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the first quarter of 2017. This represents a year-over-year net gain of 67 markets. “Nearly three-quarters of all metros saw their Leading Markets Index rise over the quarter, a sign that the overall housing market continues to make broad-based gains,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the report.

The Youngstown-Warren MSA has an LMI score of 76, or 76% of its pre-recession market strength.

Baton Rouge, La., tops the list of major metros on the LMI, with a score of 1.76 – or 76% better than its historical normal market level. Other major metros leading the group include Austin, Texas; Honolulu; Provo, Utah; and San Jose, Calif. Rounding out the top 10 are Spokane, Wash.; Nashville, Tenn.; Los Angeles; Charleston, S.C.; and Salt Lake City.

Among smaller metros, Odessa, Texas, has an LMI score of 2.18, meaning that it is now at more than double its market strength prior to the recession. Also at the top of that list are Midland, Texas; Ithaca, N.Y.; Walla Walla, Wash.; and Florence, Ala.

The Index examines metro areas to identify those that are now approaching and exceeding their previous normal levels of economic and housing activity. Approximately 340 metro areas are scored 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. In calculating the index the association uses employment data from the Bureau of Labor Statistics, house price appreciation data from Freddie Mac and single-family housing permits from the U.S. Census Bureau.

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