Get Blog Updates on your iGoogle homepage:
| Identifying the Markets Most Out of Balance |
| Written by Jonathan Smoke | |
| 09.13.2007 | |
|
Discuss this article on the forums. (0 posts) As we looked at Jacksonville’s inventory overhang yesterday, we developed a very useful measure for identifying which markets are most out of balance.  While balance might seem the best condition to achieve, for investment purposes identifying the extremes—those markets most oversupplied and most undersupplied --should signal where there may be buying opportunities and where there may be the best conditions for price appreciation.Topping the list of markets most over supplied are the following markets:
Each of these markets has an accumulated oversupply of total permits that far exceed the conditions in other markets. I was a little surprised to only see one California and two Florida markets on this list with three markets from Texas, but the numbers reveal that permitting seemed to have no constraints in the Texas major markets in recent years. When you also look at price appreciation this decade, you see that these same Texas markets had relatively low appreciation. At the opposite end of the spectrum are the following top ten undersupplied markets:
This is indeed an interesting collection of markets. Over half are in the Midwest, where economic conditions have been weak and declining and where prices were not very strong even in the boom for the rest of the country. For the Midwest, the undersupply condition represents some rational behavior by builders and developers. Despite household growth, in the absence of strong jobs and income growth, investments were best made elsewhere. In these depressed markets if and when the local economies improve there will be ample demand. At first, my home MSA Atlanta surprised me to be on this list as single-family permits were oversupplied from 2004 through 2006, but total permits were undersupplied during that time frame. And permits have fallen abruptly in 2007 leaving Atlanta in a total new housing deficit compared to household growth. In reviewing these markets most out of balance with total permits, I wouldn’t make an investment decision based solely on this information. Perhaps adding perspective on home price forecasts and local economic conditions would provide a more perfect mix to rate the best and worst markets for potential housing performance. We’ll work on that. 
We're always looking for feedback from our readers.
|
| < Prev | Next > |
|---|
