Report says there’s no risk of a housing downturn

April 2nd, 2015

Most housing markets in the U.S. are healthy.

The latest leading index of healthy housing markets (LIHHM) from Nationwide Insurance showed the real estate sector is doing well. The report, which tracks the overall real estate environment of 373 metropolitan statistical areas, found progress in most of these markets, indicating the national real estate industry will not experience another downturn within the next year. In fact, conditions are on par with 2001, the first year Nationwide began tracking the data.

The housing recovery has been gradual, but improvements in home prices skyrocketed in the earlier stages. With prices shooting up at levels similar to what the nation saw before the recession, some analysts anticipated another housing bubble was coming. The Nationwide report said otherwise but did note some local housing markets are still struggling.

Most metro areas are improving
The LIHHM for the first quarter of 2015 was 109.8. Although this was only a slight increase from the previous quarter, any value higher than 100 indicates a healthy housing market.

Pittsburgh topped the list of metro areas that are performing well. Cleveland-Elyria, Ohio; Philadelphia; Rockford, Illinois; and Burlington, North Carolina rounded out the top five. The report noted most of healthy markets were in the Midwest and Northeast.

On the other end of the spectrum, Bismarck, North Dakota, had the lowest rank of the 373 markets tracked by the index, followed by Atlantic City-Hammonton, New Jersey; New Orleans-Metairie, Louisiana; Lafayette, Louisiana; and Casper, Wyoming.

Houston was also in the bottom of the ranking, which may have been the result of declining oil prices. Barton Smith, an economist and professor at the University of Houston, told the Houston Chronicle that the city could be headed for a downturn if oil prices don’t improve.

Why economists are keeping an eye on the market
While the national housing market and economy overall continue to improve, many analysts are still cautious, particularly as a result of home price appreciation. Inman noted current price growth is artificial because it stems from accommodative monetary policy from the Federal Reserve rather than positive economic indicators.

This policy direction could create a housing boom or bust, and as shown by the Nationwide report and Houston’s housing market specifically, Fed intervention hasn’t been as beneficial for potential homebuyers in certain areas. The good news is the overall economy – particularly employment – is improving, providing many Americans with more job opportunities to find higher wages and afford a home.