What drives the index ranking Johnson City’s housing market among nation’s top performers

JC KPT compared PPPHousing markets in the Johnson City and Kingsport-Bristol MSAs continued outperforming the national average in February according to the National Association of Home Builders/Frist American Leading Markets Index (LMI).

The index has raised some eyebrows with the Johnson City ranking.

Since October when the NHBA switched from an Improving Markets Index to the LMI Johnson City has been ranked among the 10 best performing markets in the nation.

The housing market in the three-county Johnson City MSA has had that status for the past five months. Currently its overall rating has been at 1.33 for the last three months. The economists at the NAHB say an index value above one indicates the market has advanced beyond its previous sustainable level of activity.

The current national average is 0.87. Kingsport-Bristol had a 0.88 index rating in October. It increased to 0.89 this month. That means Kingsport-Bristol’s housing market is performing at 89 percent of its past sustainable level.

According to the NHBA, an index value above the national level indicates the market is doing better than the country as a whole.

Johnson City’s ranking has caused some to wonder if the LMI is a reliable housing market metric.

The answer is yes and no.

Like any index it’s composed of different data indexed with each other.

Here’s what’s under the hood of the LMI according to the NHBA’s explanation of its methodology.

“The LMI compares the current levels of three components– employment (BLS – Bureau of Labor Statistics), house prices (Freddie Mac) and single-family building permits (Census)– to their normal, sustainable levels. For each component, the current level as a share of the normal level is calculated. The LMI is the average of these three shares. The LMI is calculated for individual markets, as well as an overall national number.”

The bottom line is the LMI shows the Johnson City area is a hot market performing above its past sustainable level.

When you look at the individual component scores you see permits and prices in Johnson City are making up for what is an otherwise weak employment sector performance.

Job creation in both Johnson City and Kingsport-Bristol picked up in the third quarter of last year, but both have shed many of the job gains made during their early recovery from the recession. As far as jobs go, the Tri-Cities experienced a double dip early in 2011. And, Johnson City has been hit harder than Kingsport-Bristol.

So is the LMI a good housing market metric?

I tend to think it is, but only if you look at it in this context. It’s a snapshot in time of market performance that is purposely averaged to take the volatility out of data when you look at raw numbers on a month-over-month or year-over-year basis.

When you look at the overall index values from May 2001 forward you see Johnson City housing market catching up to and moving above the Kingsport-Bristol performance in late 2003. It has outperformed it ever since.

Kingsport-Bristol’s index level was slowly declining before the recession hit the Tri-Cities and continued that trend. Its contraction was very slow so it didn’t suffer as much shock as the Johnson City MSA market, which saw its trend line hit a steep decline from March of 2008 through August of 2009.

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