NAHB introduces new index to measure progress

The National Association of Home Builders (NAHB) has launched a new economic index called the NAHB/First American Leading Markets Index (LMI). This new index replaces the Improving Markets Index (IMI) and will shift the focus from identifying markets that have recently begun to recover to those that are now approaching and exceeding their former normal levels of economic progress.

Using the same three critical measures of economic health—single-family building permits, home prices, and employment—the LMI compares the current levels of these three components to their last normal, sustainable levels. A comparison of individual markets is calculated, as well as an overall national number. All markets (350-plus metropolitan areas) are scored.

The score is the average of the three components’ proximity to the last period of normality. An index value above one indicates the market has advanced beyond the previous sustainable level of economic activity. An index value above the national index level indicates the market is doing better than the country as a whole, moving beyond the most recent period of normal economic growth.

Index components are calculated by taking the average permit, price, or employment number for the past year and dividing it by its annual average over the last period of normal growth. For single-family permits and house prices, 2000 to 2003 is used as the last normal period, and for employment, the year before the beginning of the Great Recession in 2007. Permits and employment are divided by population in the current and normal period to account for growth that did take place. The three components are averaged to provide a score for each market.

The index will be published on the fourth working day of each month, unless that day is a Friday; in which case, it will be released on the following Monday.