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Housing recovery predicted by 2016

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The Leading Markets Index (LMI) was introduced by the National Association of Home Builders (NAHB) in October 2013 replacing the Improving Markets Index (IMI). It is a monthly monitor of how close some indicators are to normal home construction market conditions. Instead of tracking six month improvement from the bottom rates, LMI compares recent levels to normal market levels. Follow the website index monthly online.

The indicators used by the NAHB to predict economic and housing market health are

  • the number of single-family home permits
  • appreciation rate of home prices
  • employment rates.

As of December 2013 rating by the old IMI, single-family home permits are up about double their lowest point, the appreciation rate of home prices is up 15 percent from the bottom rate, and the economy has reportedly added 7 million jobs. The new U.S. LMI is 0.85 which shows the three measuring indicators average only 15 percent below the normal market.

Although the number sounds not bad, home prices and employment levels are raising the index. National home prices are 18 percent above last normal market from 2000 to 2003; total employment is 94 percent of 2007's normal period. Single-family construction permits are only at 43 percent of normal 2000-2003 and not expected to hit normal levels again until 2016. The sustainable level of housing starts is 1.7 million per year. One million housing starts are expected in 2014 after a record low for three generations in 2009.

The numbers vary by region depending on local economies and how deeply they had collapsed. Of 361 markets tracked, 52 city areas have an LMI at or above 1 because of stronger economies. Eighty-three percent of the slowest 100 markets to recover are in the states of Arizona, California, Florida, Georgia, Illinois, Indiana, Minnesota, Nevada, Ohio and Wisconsin.

According to David Crowe, Chief Economist with NAHB, "Recovery speed depends on local economic conditions, employment growth, distressed home sales, strength of the home builders, and many other idiosyncratic elements of a local market."

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