Real estate markets across the country continued their slow climb back to normal market conditions. In early August, the National Association of Home Builders and First American Leading Markets Index (LMI) reported that most markets across the United States have been trending to normal. The LMI increased to a score of 0.92, suggesting the US is closing in on its goal for a normalized market.
The LMI measures the proximity of a certain market to its previous, normal economic and housing market outlook. When a housing market has hit “normal,” meaning it has fallen within numbers seen consistently in its past, the market will have a value of 1. At 0.92, the United States market overall has gotten closer to normalcy but still has some improvement remaining.
The LMI uses three components to measure their index.
First, they look at home prices for a certain market. On a national average, home prices have improved the most, with a score of 1.29. Essentially, home prices are 29% more than they were when last normal. For big national averages, its important to remember that markets like San Francisco and New York City can do a lot to drive the overall average, but in this case the number really reflects the overall improvement of the nation. In this case, 95% of markets had an index over 1 for housing price normalization.
Second, they look at employment figures to determine the employment market health of an area. The US overall averaged an employment score of 0.96, showing that the job market has nearly made a complete recovery. 65 markets across the US have met or passed their last “normal” score and are now scoring above 1.0 in employment numbers.
Finally, the index looks at single housing starts across the nation to gauge the construction industry’s return to normalcy. Currently, single-family starts are still behind, with an average score of 0.49—suggesting builders are still waiting for more buyers to jump into the market. However, single-family starts saw a 13% increase in June and in that month topped the January 2008 annualized rate for single family starts. Although the nation would like to see more building, the marked improvement over this summer has been very encouraging. Multi-family starts have also been very healthy, increasing 28.6% in June—numbers that this index do not take into account.
Fifty four percent of metro areas saw their scores increase from the first to the second quarter of 2015. Meanwhile 66% of all markets have seen improvement from 2014 to 2015.
The three figures mentioned obviously do not account for all the subtleties and distinctions of individual markets, but they do give a good sense that the United States Housing Market has been and should continue to improve moving forward.