Housing prices led overall U.S. economic health at the end of 2016 on the NAHB/First American Leading Markets Index (LMI) [1], but that recovery is uneven in its underlying components, the report found.
In Q4 2016, when the overall LMI score reached .99, house prices were the only component considered recovered, at 1.47. The level considered normal is 1.0. The component closest to being recovered is employment, at .98, but single-family permits are furthest from normal, at .52, the report found.
The Q4 overall index of .99 was .01 higher than its level in the Q3, and up .05 from Q4 of 2015. But, as it has done steadily since its doldrums in early 2012, when the index was at .78, the index of overall U.S. economic health is improving.
According to the LMI, recovery varied across the country in Q4. Nationally, 174 of the 337 metro areas tracked were considered normal.
“House prices have reached or now exceed their last normal period in 327 of the 337 markets tracked,” the report stated. “However, permits have recovered in only a handful of markets, 66. The lagging single-family category partly reflects constraints faced by builders.”
The LMI map showed that recover is strongest on the West Coast, mainly along California’s coastal metro stretch and in the Pacific Northwest. Houston and some small pockets along the South Atlantic coast also are among the top 20 percent in terms of recovery.
The lowest regions for recovery overall were in the Southwest and New York/Northeast areas, as well as large Midwest metros, such as Chicago.
According to the National Association of Homebuilders [2], builders reported that cost and availability of labor and lots were significant problems in 2016. Shortages, combined with government regulation [3] (banks and environmental) were blamed for escalating construction costs and the expanding gap between the prices of new homes and existing ones.
However, the NAHB also stated that the labor market in 108 metro areas is considered back to normal. That’s 17 more than the number in the Q3 and 46 more than the number of markets a year ago.
“The improvement in the labor market is consistent with FOMC’s belief that realized gains in the labor market contributed to their decision to raise its key interest rate in the December,” the report stated.