The June NAHB/First American Improving Markets Index declined to 80 from the May level of 100. The drop was a combination of 28 new metropolitan areas added to the list and 48 dropped. The primary reason for falling off the list was a reversal in house prices. The 48 metro areas that saw a new trough in house prices had not experienced as much house price appreciation as the markets that remained on the list. The dropped market had average price appreciation of 3% as of the May report while those markets that remained on the list had an average appreciation of 4.5%.
Home prices are the most precarious of the three measures (single-family permits, employment and house prices) used to judge market improvement. The 28 markets that were new to the list in June had an average appreciation of 1.9%.
Not only are home prices the deciding factor in many markets but the June index utilized the Freddie Mac metropolitan house price index from January, 2012. The Freddie Mac index is not seasonally adjusted and house prices traditionally soften in the winter. The IMI was first introduced in September 2011 so this is the first evidence of how the traditionally soft house price cycle may affect the index.
However, the primary point of the IMI is to draw attention to the fact that individual markets behave differently than national indicators. While there were some modestly positive housing signals from national indicators in the first quarter, the second quarter of 2012 has not shown any additional strength. Nevertheless, the 80 markets in the IMI have been showing improvement in all three of the selected indicators. Moreover, the markets on the list are located in 31 states (including the District of Columbia) with 12 markets in Texas leading the list and seven in Florida placing second.
As evidence of the variation in the location of improvement, ten states lost and gained markets: Arkansas, Colorado, Indiana, Louisiana, Michigan, North Carolina, New York, South Carolina, Tennessee, and Texas.
[...] local housing and economic conditions continue to vary. For example, the NAHB/First American Improving Markets Index (IMI) fell to a count of 80 in May, primarily due to falling house prices in certain markets. The long-run trend for the IMI has been [...]