Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

1/3 Of Markets Return To Normal Levels Of Economic & Housing Activity

Written by Than Merrill

Remnants of the previous recession, while still weighing on the minds of many, are slowly being relegated to the past. The U.S. economy has made enough progress to mend a lot of the wounds resulting from the downturn. It is estimated that 100 percent of the nearly eight million people who lost their jobs have reentered the labor force. Housing prices have increased dramatically, as fewer homeowners are currently underwater. These indicators, and several more just like them, suggest that the rebound is finally gaining traction. Furthermore, a study conducted by the National Association of Home Builders (NAHB) supports the notion of a return to normalcy. Of the approximately 350 metro markets nationwide, 56 returned to or exceeded their last normal levels of economic and housing activity.

In order to quantify what many are referring to as “a return to normalcy,” the NAHB compiled economic and housing activity statistics into the First American Leading Markets Index (LMI). Accounting for current permit, price and employment data, the index currently shows a national score of .88. For those unfamiliar with these metrics, the score acknowledges that we are currently running at 88 percent (.88) of the normal economic and housing activity. Of particular interest, however, are those markets that demonstrated an increased propensity for above average growth. Thirty percent of metro areas saw their score rise this month and 83 percent have shown an improvement over the past year – each of which serve as a testament to the improving economy and housing sector.

“Markets are gradually returning to normal levels of housing and economic activity,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “When we see more sustainable levels of job growth, this will unleash pent-up demand and bring more buyers into the marketplace.”

Of those metros exhibiting the most growth, Baton Rouge is leading the way. With a score of 1.4 on the LMI, the Louisiana city has improved from its previous market activity level by a staggering 40 percent. The following list represents the top 10 metros whose scores indicate that their economic and housing activity now equals or exceeds previous norms:

  • Baton Rouge
  • Honolulu
  • Oklahoma City
  • Austin
  • Houston
  • Los Angeles
  • San Jose
  • Harrisburg
  • Pittsburgh
  • Salt Lake City

While the progress is encouraging, both the economy and housing activity have several imposing obstacles to overcome. Certain indicators have progressed more than others. “Of the three components in the LMI, the one lagging is single-family housing permits, which is only 43 percent of the way back to normal while home prices are 26 percent above their last normal level and employment is at 95 percent of its previous norm,” said NAHB Chief Economist David Crowe. “In the 22 metros where permits are at or above normal, the overall index indicates that these markets have fully recovered.”

“Well over one-third of all markets are operating at a level of at least 90 percent of previous norms, and this bodes well for a continuing housing recovery in the year ahead,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.

Even more encouraging is the fact that smaller metros are far-surpassing expectations. While they may not carry the same weight as their larger counterparts, smaller metros are preforming well across the country. Two cities in Texas, Odessa and Midland, are operating at twice their strength prior to the recession. For comparisons, that is a 2.0 on the LMI.

The LMI is just one indicator in which professionals can analyze the current status of the housing sector and the economy. There are several other indicators that need to be taken into consideration before one can form a rational opinion. None-the-less, it is a positive step in the right direction for those actively participating in the real estate industry. Investors should view this as a great time to secure assets.