Rebound Continues: Housing Markets Back to normal in 52 Metro Areas

Housing markets in 52 out of the approximately 350 metro areas nationwide have now returned to or exceeded their pre-recessionary levels of activity, according to the newly minted National Association of Home Builders/First American Leading Markets Index (LMI), released recently.

The index’s nationwide score of .85 indicates that, based on current permits, prices and employment data, the nationwide housing market is running at 85 percent of normal activity.

Baton Rouge, La., tops the list of major metros on the LMI, with a score of 1.41 – or 41 percent better than its last normal market level. Other major metros at the top of the list include Honolulu, Oklahoma City, Austin and Houston, Texas, as well as Harrisburg, Pa. – all of whose LMI scores indicate that their housing markets now exceed previous norms.

Looking at smaller metros, both Odessa and Midland, Texas, boast LMI scores of 2.0 or better, meaning that their housing markets are now at double their strength prior to the recession. Also at the top of the list of smaller metros are Casper, Wyo.; Bismarck, N.D.; and Florence, Ala., respectively.

“This index helps illustrate how far the U.S. housing recovery has come, and also how much further it has to go as we continue to face some significant headwinds in terms of credit availability, rising costs for lots and labor, and uncertainties regarding Washington policymaking,” says NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.

The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of activity. More than 350 metro areas are scored by taking their average permit, price and employment numbers for the past 12 months and dividing each by their annual average over the last period of normal growth.

For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base comparison. The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics. An index value above one indicates that a market has advanced beyond its previous normal level of economic activity.

“Smaller metros are leading the way to a housing recovery, accounting for 43 of the top 50 markets on the current LMI,” observes NAHB Chief Economist David Crowe. “This is very much in keeping with the results of our previous index for improving markets, and is an indication of the extent to which local economic conditions dictate the strength of individual housing markets.”

“The housing markets of 118 metros scored by the LMI this month show activity levels of at least 90 percent of their previous norms – a very encouraging sign of things to come,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.

Top 10 Towns with Turnaround Housing Markets

By  ILYCE GLINK / 
MONEYWATCH/ November 2, 2013, 6:50 AM

Talk about a turnaround.

Home prices in these 10 cities have jumped as much as 44 percent over the past year, driven upward by small supply and big demand.

The evidence for both lies in inventory. In these places, the number of homes for sale is shrinking, but so is the time they spend on the market.

"When inventory is low and age of inventory is low, that means there are more buyers out there snapping up properties at the price point offered so homes aren't sitting on the market," said Leslie Piper, Realtor.com's consumer housing specialist. "That's the balance you want."

Nationally, inventory has dropped 3.3 percent, but even more telling is the drop in age of inventory, which has declined 17.7 percent in the third quarter of 2013 over the same period last year, according to a Realtor.com Turnaround Towns report. Typical homes spent about 84 days on the market between July and September, while last year they spent 102 days on market.

So the 10 towns on this list have seen big jumps in the median list prices, as well as drops in the amount and age of inventory, meaning that these housing markets are undergoing a major recovery and are doing it quickly.

But that doesn't mean they're in the clear: Some, such as Las Vegas, still have a long way to go before the huge swath of homeowners affected by the crash recover their original home values, if they ever do. And others, such as Boston, may be affected by the lack of affordable housing options in the coming months.

But at least for now, things are looking up for the housing market in these 10 towns.

10. Las Vegas

Las Vegas has long been the poster child for the housing boom and bust. Some estimates saw home values drop more than 70 percent across town. But over the past year, Vegas has gained back 30.8 percent of home values, taking the median list price from $129,000 to $169,000. The number of homes available for sale is decreasing 16.9 percent and the overall age of the stock is also decreasing 23.5 percent.

9. Boulder, Colo. area

Boulder's list price is up 12.5 percent from last year -- from $319,000 to $359,000 -- and is driven by tight inventory. The inventory of homes for sale declined 18.1 percent since last year and age declined 35 percent. Those drops were amplified by massive flooding this September, further limiting the number of homes for sale.

8. Boston area

The greater Boston area is one of the nation's healthiest real estate economies, and it was barely affected by the housing crash. Even so, Boston's list price is up 9.5 percent from $314,900 last year to $344,900 today, while inventory is down 22.1 percent and the age is down 30.7 percent. However, with median list prices that high, affordability has become a major issue and may hamper price growth in the future.

7. West Palm Beach/Boca Raton, Fla.

Even though they are two of the wealthiest resort areas in the country, West Palm Beach and Boca Raton have had a particularly rough go of it in the past few years. But Florida is starting to follow California on the path to recovery and this area is no different.

Inventory fell 20.7 percent since last year, and the age of inventory also dropped 21.8 percent. Home prices climbed 17.4 percent to $229,000 from $195,000 last year.

6. Dallas

Dallas was one of those rare towns like Boston that didn't have much of a housing boom or bust. Because it didn't fall much, it didn't need to recover much.

Nonetheless Dallas saw prices rise 10.6 percent over last year -- from $189,000 to $210,000 -- and inventories are down 15.72 percent while the age is down 32 percent. But inventories actually rose from the second quarter to the third quarter this year by 3.1 percent, so that may dampen home prices.

5. Ann Arbor, Mich.

Known primarily as the home of the University of Michigan, this smaller city's housing recovery has been led by both shrinking inventory and a strengthening economy. Inventory has decreased 13.5 percent while the age has dropped 28.7 percent. Home prices are up 15.2 percent from $164,900 to $190,000.

4. Fort Lauderdale, Fla.

Down 13.8 percent this quarter compared to year-ago levels, Fort Lauderdale's inventory shortfall has lit a fire under once-lagging prices. The region is experiencing a more buyer-leaning marketplace, with reports of sellers in Fort Lauderdale offering incentives to purchase, such as seller contributions to buyers' closing costs and allowances for upgrades and renovations, according to the Realtor.com report.

That appears to be working to some degree, as inventory age dropped 35 percent over last year and home prices grew 15.8 percent, from $155,000 to $179,500.

3. Reno, Nev.

Although Reno has always stood in the shadow of Las Vegas, its recovery is standing out on its own. Home prices have risen 28.2 percent from $195,000 to $249,900, meaning that it's now cheaper to buy a home in Vegas than Reno. Inventory has fallen 19.8 percent over last year, and the housing stock is 30.43 percent younger than last year.

2. Santa Barbara, Calif. area

Santa Barbara is the only California town on the list, as most of the cities from the Golden State have already moved through a stage of accelerated recovery and have achieved a steadier pace of recovery. But Santa Barbara is still seeing big increases in home prices, to the tune of 27 percent. That takes the median list price in Santa Barbara from $549,000 to $697,777 -- the most expensive on this list.

Inventory dropped this year 15.9 percent and the age of inventory dropped 34 percent, meaning that homes stay on the market an average of just 41 days in the city, down from 62 and the smallest number of days on market in this list.

1. Detroit, Mich.

Detroit has long been struggling with an economic crisis. But the Motor City has actually turned around its housing markets. Instead of sinking when the city of Detroit had just filed for bankruptcy, its housing market quietly resurged, thanks largely to foreign and corporate investment.

"When you're sort of at the bottom, you can only really rise to the top," Piper said. "I think you're going to continue to see a lot of investors take the risk to get the greatest reward."

She also pointed to a proposal from Barclay's to loan the city $350 million. Even though the city council doesn't like the loan, it speaks to this idea that financial giants are still willing to invest in Detroit, she said.

Younger generations and some start-up companies are willing to set up in Detroit as well, taking advantage of cheap homes, cheap land and cheap rents.

Prices in Detroit are up a whopping 44.3 percent over last year and it trimmed its for-sale inventory and the age of its inventory, down 24.5 percent and 33.9 percent respectively, since last year. Prices are still low for a city of its size, with the median list price at $129,900, up from $90,000 last year.