Dive Brief:
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The U.S. housing market is operating at 99% of its normal activity level, according to the National Association of Home Builders/First American Leading Markets Index for the fourth quarter of 2016. The mark is 0.01 point ahead of the third quarter and 0.05 above the year-ago mark; it is up by 0.21 points from the cycle low in March 2012.
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Although home prices and employment are reaching or exceeding normal levels of activity at 147% and 98%, respectively, single-family permits are running at just 52% of normal. The index tracks single-family residential permits, employment and home prices to determine projections of typical activity in a market.
- Recovery remains uneven, however, with 174 of the 337 markets tracked by the index reaching or surpassing what is considered normal housing and economic levels during the period, an increase of 60 markets from a year ago.
Dive Insight:
NAHB Chief Economist Robert Dietz noted in a statement that the shortage of single-family permits in many markets is a primary driver of the supply squeeze, pushing prices up. He cited regulations and labor and lot shortages as inhibitors to new single-family construction.
Roughly three-quarters of markets nationwide were at or above 90% of the LMI during the quarter, with Baton Rouge, LA, Austin, TX, Honolulu, Provo, UT, and San Jose, CA, leading among major markets. Smaller markets including neighboring cities Odessa and Midland, TX, as well as Ithaca, NY, and Walla, Walla, WA, also reported high LMI scores.
Overall, home prices are continuing to climb. The latest S&P Core Logic Case-Shiller U.S. National Home Price Index showed a 5.3% annual increase in November compared to 5.1% in October for the country’s top 20 metros, with prices in Seattle and Portland, OR, once again leading the way.
Prices are being supported by strong demand. Redfin recently forecast demand to strengthen further in early trading this year despite the recent uptick in mortgage rates.
Still-low mortgage rates and employment growth are helping to offset the impact of higher home prices while costs associated with lot and labor shortages along with already tight inventory could challenge builders’ ability to respond with new construction.
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