U.S. Housing Permits Slip in Late 2017, Says NAHB

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According to the National Association of Home Builders-First American's latest Leading Markets Index, overall housing and economic activity in metro markets across the nation remained on a gradual, upward trend in the fourth quarter of 2017 even as permit activity remained a stubbornly lagging indicator.

"While the home price appreciation and employment components of the LMI are at healthy levels and continue to expand, we are concerned with the sluggish permit activity," said NAHB Chief Economist Robert Dietz. "The weak permit numbers indicate that builders may be hesitant to start projects as they contend with supply-side hurdles, such as rising material prices and labor shortages."

"This report shows that the overall housing market is moving forward at a gradual pace, with the fastest growing metro areas mostly in the South and West," said NAHB Chairman Randy Noel. "Continued economic growth, rising consumer demand and a pro-business political climate should keep housing on an upward trajectory in 2018."

Markets in 195 of the 337 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the fourth quarter of 2017. This represents a year-over-year net gain of 25 markets. Meanwhile, 82 percent of markets have shown an improvement year over year.

Two of the three individual components of the LMI registered healthy readings. Employment is at 98 percent of normal activity and home price levels are well above normal at 158 percent. However, single-family permits are running at only 56 percent of normal activity.

In an encouraging sign, employment levels are at or above normal activity in 128 markets -- a 8.5 percent rise over last quarter. Permit levels, on the other hand, are at or above normalcy in only 62 markets and dropped 7.5 percent from the third quarter of 2017.

"The number of markets on this quarter's LMI at or above 90 percent has risen to 274 -- more than 81 percent of all metro areas," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report. "This shows that the overall market continues to make modest, but consistent gains."

Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.71 -- or 71 percent better than its historical normal market level. Other major metros leading the group include Austin, Texas; Honolulu; Oxnard, Calif.; and Provo, Utah. Rounding out the top 10 are San Jose, Calif.; Nashville, Tenn.; Spokane, Wash; Los Angeles; and Salt Lake City.

Among smaller metros, Odessa, Texas, has an LMI score of 2.15, meaning that it is now at more than double its market strength prior to the recession. Also at the top of that list are Midland, Texas; Walla Walla, Wash.; Florence, Ala.; and Gadsden, Ala.

The LMI examines metro areas to identify those that are now approaching and exceeding their previous normal levels of economic and housing activity. Approximately 340 metro areas are scored by taking their average permit, price and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth.

For permits and employment, both the 12-month average and the annual average during the last period of normal growth are also adjusted for the underlying population count. 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.