Nationwides Health of Housing

Markets (HoHM) Report

Nationwide Economics
2016 Q1
Data as of 2015 Q4

HoHM Report Executive Summary:

The national LIHHM* remains above the break-even level of 100,
d
despite
it dropping
d
i
modestly
d tl att the
th end
d off 2015,
2015 suggesting
ti
th t the
that
th
overall U.S. housing market remains healthy.
Regionally, the LIHHM performance rankings show that the housing
markets in the vast majority of metropolitan statistical areas (MSAs)
and divisions are healthy. This suggests that most local housing
markets should see sustainable expansion in the near term.
Low oil prices continue to weigh on job growth and the housing
outlooks for a number of MSAs in energy intensive areas, especially
in Texas and Louisiana. MSAs in these two states now comprise eight
of the bottom ten LIHHM performance rankings.
A surprising slowdown in household growth in the fourth quarter of
2015 lowered the national LIHHM ranking,
ranking and filtered into the MSA
rankings as well. Given continued solid job growth and incipient
wage gains, household formations should pick up again soon,
reversing the negative impacts on the latest LIHHM rankings.
* Leading Index of Healthy Housing Markets (LIHHM): A data-driven view of the near-term
performance of housing markets based upon current health indicators for the national housing
market and 400 metropolitan statistical areas (MSAs) and divisions across the country.
country

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HoHM Report 2016 Q1

The national LIHHM remains in the healthy zone, suggesting a sustainable U.S. housing market
The current value for the national LIHHM is 105.4, the lowest level in two years. An index value over 100
suggests that the national housing market is healthy, with lower chances of a housing downturn over the
next year as the index moves increasingly above the 100 break-even value. Household formations, which
had been above the long-term trend for the past year, fell sharply in the fourth quarter lowering the main
demographic housing demand factor in the national LIHHM. Regionally, the LIHHM performance rankings
show that the vast majority of metro areas across the country are healthy, indicating that few regional
housing markets are vulnerable to a housing downturn but the outlook for sustainable housing activity in
l
local
l markets
k t with
ith strong
t
ti to
ties
t the
th energy sector
t continues
ti
t deteriorate
to
d t i
t as low
l
oil
il prices
i
persist.
i t

National LIHHM
125

125

120

120

115

115

110

110

105

105

100

100

95

95

90

90

85

85

80

80

75

75

LIHHM Scores*
125

POSITIVE

100

NEUTRAL

75

NEGATIVE

MSA LIHHM Performance Rankings

Performance
Rankings*

400
350
NumberofM
MSAs

300

+4

POSITIVE

NEUTRAL

250
200
150
100
50
0
-4

* See appendix for full descriptions

NEGATIVE

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HoHM Report 2016 Q1

The regional LIHHM rankings continue to show that the majority of housing markets are healthy
Twenty-one MSAs have a +3 ranking with an additional 156 in the +2 ranking, meaning that nearly half of
all MSAs have very healthy housing markets. There are now eight MSAs with a -1 ranking, indicating a
modest risk of a downturn, while an additional thirty-three MSAs are neutral.
The Midwest and Northeast regions are the strongest on average solid employment growth, healthy
mortgage market fundamentals, and sustainable house price gains are more widespread in these areas.
MSAs in energy-intensive states (particularly in Louisiana and Texas) dominate the bottom-10 list, with
an increasing number rated as negative, suggesting potential housing slowdowns over the next year.

Performance
Rankings

+4

POSITIVE

NEUTRAL

-4

NEGATIVE

Top 10 MSAs

Data as of 2015 Q4

Bottom 10 MSAs

Rank

Metropolitan Statistical Area

Rank

Metropolitan Statistical Area

Dayton OH

400

Houma-Thibodaux LA

Yakima WA

399

Laredo TX

Cleveland-Elyria OH

398

Lafayette LA

Saginaw MI

397

Victoria TX

Syracuse NY

396

Austin-Round Rock TX

Trenton NJ

395

Asheville NC

Niles-Benton Harbor MI

394

Hammond LA

Memphis TN-MS-AR

393

San Angelo TX

Lansing-East Lansing MI

392

Odessa TX

10

Columbus OH

391

Watertown-Fort Drum NY

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HoHM Report 2016 Q1

Only one of the top 40* MSAs by size has a LIHHM performance ranking that is negative, while four
more are neutral, suggesting that most of the major U.S. housing markets are healthy with little chance
of a downturn in the near term.

PerformanceRankings

MSAs by size
(Top 40), with
corresponding
performance
rankings

Performance Rankings:
+4

-4

POSITIVE

NEUTRAL

NEGATIVE

Metropolitan Statistical Area

New York-Jersey City-White Plains NY-NJ

Current
2

Prior Qtr
2

Prior Year
1

Los Angeles-Long Beach-Glendale CA

Chicago-Naperville-Arlington Heights IL

Houston-The
Houston
The Woodlands
Woodlands-Sugar
Sugar Land TX

Atlanta-Sandy Springs-Roswell GA

Washington-Arlington-Alexandria DC-VA

Phoenix-Mesa-Scottsdale AZ

Dallas-Plano-Irving TX

Minneapolis-St. Paul-Bloomington MN-WI

10

Riverside-San Bernardino-Ontario CA

11

Tampa-St. Petersburg-Clearwater FL

12

San Diego-Carlsbad CA

13

Seattle-Bellevue-Everett WA

14

St Louis MO-IL

15

Denver-Aurora-Lakewood CO

16

Baltimore-Columbia-Towson MD

17

Anaheim-Santa Ana-Irvine CA

18

Warren-Troy-Farmington Hills MI

19

Pittsburgh PA

20

Oakland-Hayward-Berkeley CA

21

Portland-Vancouver-Hillsboro OR-WA

22

Nassau County-Suffolk County NY

23

Charlotte-Concord-Gastonia NC-SC

24

Mi i Mi i Beach-Kendall
Miami-Miami
B
h K d ll FL

25

Orlando-Kissimmee-Sanford FL

26

Cambridge-Newton-Framingham MA

27

Newark NJ-PA

28

Fort Worth-Arlington TX

29

Cleveland-Elyria OH

30

Cincinnati OH-KY-IN

31

San Antonio-New Braunfels TX

32

Sacramento-Roseville-Arden-Arcade CA

33

Philadelphia PA

34

Kansas City MO-KS

35

Columbus OH

36

Las Vegas-Henderson-Paradise NV

37

Indianapolis Carmel Anderson IN

Indianapolis-Carmel-Anderson

38

Boston MA

39

Fort Lauderdale-Pompano Beach-FL

40

Austin-Round Rock TX

Data as of 2015 Q4
* Largest 40 determined by number of households

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HoHM Report 2016 Q1

Demographics
g p
should turn positive
p
again
g
for housing
g demand soon, in spite
p
of a surprising
p
g
decline in household growth at the end of 2015
Trends in household growth are a key determinant of housing demand at the national and local levels.
Household formations tend to accelerate as employment and income conditions improve, supporting
further growth for both rental and owner-occupied units. The balance between housing supply and
demand is an important driver of healthy trends in house price growth and housing affordability.
Household growth, as the key demographic component of the LIHHM, contributes to the understanding of
movements in housing demand at a fundamental level.
level Dating back to 2001 (the starting point for the
LIHHM), the data show household growth impacting overall housing market health in the following ways:

Above-average growth in the housing boom: Following a drop-off in 2002-03 in response to the 2001
recession and accompanying the jobless recovery, average household growth was stronger than the
long-term median of 1.2 million per year. Positive economic growth, strong job gains, and double-digit
house price gains led to a surge in household formations during the housing boom helping to create
imbalances in the housing market.

Bust recession
Bust,
recession, and tepid recovery: Weak household growth following the Great Recession (well-below
(well below
the long-term median) was indicative of still strained labor market conditions for many potential
homebuyers, particularly those from the millennial generation. Even younger workers who had a job
were more likely to be underemployed or to live with others, rather than create new households.

Recent growth and looking ahead: Beginning in the fourth quarter of 2014, the cumulative boost from
stronger job growth over the prior two years, particularly for the 25-34 age cohort, and the pent-up
demand to form households resulted in a sizable jump in national household formations. The recent
economic, jobs and wage data do not support the surprising 2015 Q4 decline. Consequently, we expect
h
household
h ld formations
f
ti
to
t accelerate
l
t again
i soon, boosting
b
ti
housing
h
i
demand
d
d and
d pushing
hi
up the
th LIHHM.
LIHHM

Change,yearto
oyear,Millions

Household
Growth*

Long-term median

* 4-quarter change in the number of U.S. households

Source: Census Bureau/Haver Analytics
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HoHM Report 2016 Q1

Since the LIHHM scores in many MSAs have remained positive over the last year, half of the
LIHHM rankings have not changed reflective of continued health in local housing markets

The best measure of the near-term health of housing markets is the current LIHHM (page 3), but looking
at movements in the LIHHM over the course of a year can provide useful information, as well.
Roughly a quarter of MSAs demonstrated improvement in their LIHHM performance rankings over the
past year, but only four local markets had larger increases.
Another quarter of MSAs posted declines in their rankings during 2015. The majority of the MSAs that
decreased, however, fell only slightly there were eight MSAs that declined more sharply, led by
several MSAs in Texas.

Current
LIHHM
4Q change
+3

INCREASED

UNCHANGED

-3

DECREASED

Largest Increase

Largest Decrease

Rank

Metropolitan Statistical Area

Rank

Metropolitan Statistical Area

Weirton-Steubenville WV-OH

400

Victoria TX

Lima OH

399

San Angelo TX

Lansing-East Lansing MI

398

Grand Junction CO

Glens Falls NY

397

Laredo TX

Waterloo-Cedar Falls IA

396

Williamsport PA

Dubuque IA

395

Farmington NM

Fairbanks AK

394

Buffalo-Niagara Falls NY

Roanoke VA

393

Asheville NC

Columbus IN

392

Boulder CO

10

Oshkosh-Neenah WI

391

Santa Fe NM

Change in performance ranking; Data as of 2015 Q4

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Appendix

Leading Index of Healthy Housing Markets (LIHHM)

Nationwides LIHHM is a data-driven view of the near-term performance of housing
markets based upon current health indicators for the national housing market and
400 metropolitan statistical areas (MSAs*) and divisions across the country. For
each MSA, the LIHHM uses local-level data to incorporate the idiosyncratic
characteristics of regional housing markets. The focus of the LIHHM is on the entire
housing markets health, rather than a projection of house prices or home sales.

Nationwide Economics LIHHM methodology

The LIHHM is calculated using a number of variables that describe many of the
drivers of the housing market for each MSA. In order to provide the best indicator of
housing
g health,, the included variables and corresponding
p
g weights
g
for each p
provide
the optimal leading perspective on future housing markets for each MSA. The drivers
can be grouped into the following categories:
1.
2.
3.
4.

Employment
Demographics
Mortgage Market
House Prices

As an illustration, if job growth increases in an MSA, then the resulting rise in incomes
creates additional housing demand. Consumers have a greater ability to earn and
save for home purchases, increasing sales and pushing up house prices. The LIHHM
measures the movements in the included employment, demographic, mortgage
market, and house price variables versus the long-term trends within each MSA.
These drivers are used to derive an overall LIHHM score on a scale from 75 to 125
centered around a neutral value of 100. These values are placed into performance
rankings to allow for better comparisons across MSAs. These performance rankings
are the key metric in comparing the MSAs both to each other and across time. Raw
LIHHM values are used for calculation purposes only and will only be shown on the
national level as the national score is standalone and is not compared to other areas.

* MSA: Geographical region with high population density and close economic ties throughout the nearby area,
capturing 85-90% of the U.S. population
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Authored by Nationwide Economics

DAVID BERSON, PhD
Senior Vice President, Chief Economist
David holds a doctorate in Economics and a masters degree in Public Policy
from the University of Michigan. Prior to Nationwide, David served as Chief
Economist,
i S
Strategist
i and
d Head
d off Risk
i k Analytics
l i for
f The
h PMI Group,
G
Inc., and
d
Vice President and Chief Economist for Fannie Mae. David has also served as
Chief Financial Economist at Wharton Econometrics and visiting scholar at the
Federal Reserve Bank of Kansas City. His government experience has included
roles with the Presidents Council of Economic Advisors, U.S. Treasury
Department and the Office of Special Trade Representative. He is a past
President of the National Association for Business Economics.

BRYAN JORDAN, CFA

Deputy Chief Economist
Bryan is a frequent author and knowledgeable source on economic topics, and
has been featured in The Wall Street Journal and New York Times. Bryan holds
degrees in Economics and Political Science from Miami University and has
earned the Chartered Financial Analyst designation. He currently serves as
Chairman of the Ohio Council on Economic Education and is a member of the
Ohi G
Ohio
Governors
C
Council
il off E
Economic
i Ad
Advisors,
i
th
the N
National
ti
lA
Association
i ti
for
f
Business Economics, and the Bloomberg monthly economic forecasting panel.

BEN AYERS, MS
Senior Economist
Ben authors periodic economic analyses from the Nationwide Economics team,
as well as commentary
y on key
y economic topics.
p
Ben is also responsible
p
for
understanding and analyzing the enterprise business drivers to assist the
strategic planning process. He holds a Master of Science in Economics from the
Ohio State University, specializing in applied economic analysis, and a BSBA
from the Fisher College of Business at the Ohio State University, with a focus
on economics and international business.
Additional contributors: Chrissy Charters, Ankit Gupta, Daniel Hadden, Steve Hall, and Matt Workman

The information in this report is provided by Nationwide Economics and is general in nature and not intended as investment or economic
advice, or a recommendation to buy or sell any security or adopt any investment strategy. Additionally, it does not take into account any
specific investment objectives, tax and financial condition or particular needs of any specific person.
The economic and market forecasts reflect our opinion as of the date of this report and are subject to change without notice. These
forecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they will not reflect actual
performance. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness or
fairness.

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