David Crowe

Chief Economist 


Washington, D.C.

Anje Jager/agencyrush.com David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com

Housing markets reflect local economies, not national numbers. We have been bombarded by indicators of national economic and housing market stress for several years. The latest downward movements in the S&P/Case-Shiller price indexes get national attention as they show limited information about a few markets. Many are left with the impression that all markets are bad. But, not all markets are equal.

The Great Recession reached virtually every market large and small. The origins were concentrated in places that experienced outsized increases in housing demand, house prices, and home construction or places that experienced fundamental employment base changes. House prices in California jumped from a historical level just under five times income to more than nine times income. Real per capita gross state product in Michigan fell over 6 percent in the first decade of the 2000s while national GDP rose over 6 percent. The stress within some very large states and metropolitan areas spread to the rest of the country, and all places experienced a recession, although the degree of housing market collapse varied. For instance, housing production in Nevada fell to 12 percent of normal while housing production in Wyoming fell to 75 percent of normal.

Recovery will depend heavily on the amount of healing needed. The one-third of states that fell farthest from their normal production levels will take the longest to get back to normal, and these 16 worst states usually account for half the nation’s housing production. Conversely, the 16 states that will recover first typically account for 20 percent of the nation’s housing production. So, national indicators will be slow to record recoveries because the first to heal are relatively small and will not have large impacts on national numbers.

In order to emphasize the local nature of the housing market and to the differential economic recovery, the NAHB developed the NAHB/First American Improving Markets Index (IMI). The index counts the number of metropolitan areas that are improving, which is defined in a very conservative manner. A metropolitan area makes the list if three primary indicators of economic health have seen improvement for six months after their respective troughs. The individual indicators are single-family housing permits, employment, and house prices. Each individual data series is produced by government or quasi-government agencies and contains monthly information.

The inaugural release of the IMI was at the NAHB Fall Board of Directors meeting in early September and will continue to be on the fourth business day of the month. The September index value was 12, meaning 12 metropolitan areas have seen at least a six-month improvement in all three indicators. While the first release was in September, the index was calculated for past months and does show a continuous increase in the number of markets improving from five in December 2010 to 10 in August 2011 and 12 in September. Go to www.nahb.org/IMI for the latest release.

The metro areas improving are concentrated in the center of the U.S. where local housing and economic distress was the least and where local economies are recovering because of their base. Many are energy producers, e.g., Casper, Wyo., Houma, La., and Bismarck, N.D. However, recovering markets also exist in the East, e.g., Fayetteville, N.C., and the far reaches, e.g., Anchorage, Alaska. Most are small, but a few are large, such as Pittsburgh and New Orleans.

As more metro areas see improvement in all three components, the index will grow. More importantly, as knowledge of the index becomes more widespread, more consumers will understand that single national housing and economic indicators are not good measures of the health of their own local market. While your market may not be on the list of improving, it doesn’t mean that your community isn’t improving. Recovery will be local in the early stages.