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Trends
in Housing
Supply and
Demand
In
order to
get a
better
understanding
of local
trends in
housing
supply and
demand, it
is useful
to
calculate
a
five-year
moving
average.
In the
following
example,
for the
five-year
period
ending
2004,
total
units
authorized
by
building
permits
averaged
892.
Housing
production
is
typically
uneven in
part
because of
a mix
changing
local
economic
conditions,
changing
interest
rates, and
changing
credit
terms. In
contrast,
housing
demand
changes
much more
slowly.
Housing Units Authorized by
Building Permits
Primary Market Area
|
YEAR
|
Total
|
5 Year Moving Average
|
|
2000 |
836 |
N/A |
|
2001 |
898 |
N/A |
|
2002 |
992 |
N/A |
|
2003 |
969 |
N/A |
|
2004 |
766 |
892 |
|
2005 |
657 |
856 |
|
2006 |
480 |
773 |
|
2007 |
346 |
644 |
|
2008 |
198 |
489 |
Source: U.S. Department of Commerce.
If we compare a five-year moving average of all types of construction
with a five-year moving average for overall housing demand (household
change plus replacement requirements), we should get a good picture of
changing market conditions. The five-year moving average allows
sufficient time for adjustment to prices and rents, including tenure
shifts (owner versus renter).
As noted above, for the five-year period ending 2004, building permit
authorizations averaged 892. The table below shows demand from household
formation and replacement requirements over the same period was 740,
leaving an excess of 152 units for the five-year period. Currently, this
market has trended to a small shortage of units at the start of 2009.
Lastly, we can also calculate where the upper quartile sale price and
rent level are likely to "settle-in" for a roughly balanced housing
market. For this market, these are estimated to be $133,020 and $518
respectively based on the most recent changes in income levels reported
by HUD.
This approach follows standard HUD-FHA market analysis techniques. For
the best results, the overall housing market area should correspond to a
labor market area such as a county or group of counties (in this case
Primary Housing Market Area is a county and also a labor market area).
The general conclusion would be that, today, the Primary Area housing
market looks roughly in supply/ demand balance overall though there would
not be a perfect match at any time between unsold units (or vacant
apartments) and demand by price (or rent).
Housing Supply - Demand Analysis
Primary Market Area
|
Beginning
in 2000
|
New Housing Supply
5-year average ending |
Housing Demand
5-year average ending |
Supply Minus Demand
(balanced market= zero) |
|
2004 |
892 |
740 |
152 |
|
2005 |
856 |
700 |
156 |
|
2006 |
773 |
660 |
113 |
|
2007 |
644 |
620 |
24 |
|
2008 |
489 |
580 |
-91 |
Forecast Period
|
2009 |
336* |
570 |
-234 |
| 2010 |
205* |
560 |
-355 |
| 2011 |
109* |
550 |
-441 |
Source: Estimated by URBEK
*For 2009 -2011, only carry-over supply is shown from previous
years (no new construction level estimates have been made). The
forecast period shows that without additional new construction, the
local market would trend to a shortage of housing.
Note: Housing units authorized by building permits report type
of structure; and they include public and private production. Also,
developer.s expectations as to occupancy (owner or renter) can
differ substantially from what housing consumers will accept.
Condominiums, for example, may be built for owner occupancy, but
purchased by individuals who in turn rent the units. As a result,
building permit data are only a general guide to new construction
needs in the sales and rental markets.
Back to Sales Demand
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