|
Demand/Supply
Ratio
|
|
|
|
 |
| MOST RECENT STATISTIC: |
(0.03) |
|
|
| GRADE: |
F |
|
|
| PERIOD COVERED: |
July 2010 |
|
|
| Date Released: |
8/06/10 |
|
|
| Next Release: |
9/03/10 |
|
|
|
|
|
July-10 |
June-10 |
May-10 |
Jul-09 |
Jul-08 |
|
| 12-Mo. Employment
Growth (000) |
(17) |
(180) |
(467) |
(7,079) |
(360) |
| 12-Mo. Manuf. Hsng.
Placements (000) |
50 |
50 |
53 |
48 |
82 |
| 12-Mo. Total Permits |
565 |
583 |
574 |
587 |
921 |
| 12-Mo. Total Supply |
615 |
633 |
627 |
635 |
1,003 |
| 12-Mo.
Employment/Supply Ratio |
|
|
|
|
|
| (including
manufactured homes) |
(0.03) |
(0.28) |
(0.74) |
(11.15) |
(0.36) |
| (excluding
manufactured homes) |
(0.03) |
(0.31) |
(0.81) |
(12.06) |
(0.39) |
| Historical
Employment/Supply Ratio |
|
|
|
|
|
| Total Employment,
previous year |
131,900 |
131,900 |
131,900 |
137,100 |
137,600 |
| Total Households,
previous year |
129,100 |
129,100 |
129,100 |
128,500 |
127,900 |
| Employment/Household
Ratio |
1.02 |
1.02 |
1.02 |
1.07 |
1.08 |
| Current
Demand/Supply Ratio |
|
|
|
|
|
| (including
manufactured homes) |
(0.03) |
(0.28) |
(0.73) |
(10.45) |
(0.33) |
| (excluding
manufactured homes) |
(0.03) |
(0.30) |
(0.80) |
(11.30) |
(0.36) |
|
| Source:
Hanley Wood Market Intelligence |
Analysis for the Housing Market
By:Jonas Adams
As job losses continue to slow our Demand/Supply Ratio continues to improve. While still negative in July, the Demand/Supply Ratio increased sharply from (0.28) in June to just (0.03) in July. Year-over-year employment growth shows for the 27th consecutive month that the national economy lost jobs, down only 17,000 from the level seen during the same month last year. On the supply side, builders are bringing approximately 615,000 housing units into the market place (which is approximately as many units as last July), including approximately 50,000 manufactured housing units.
Based on the current trend we expect to see our Demand/Supply Ratio to positive territory next month. This will be the first time the Demand/Supply Ratio has been in positive territory since the end of 2007.
Since gains in personal and household income are dependent upon improved employment conditions, it is vital job growth shows heavy signs of improvement in the coming months in order to get housing activity moving again. Already in 2010 construction activity has shown some degree of improvement over the level seen in 2009, but remains historically weak.
Definitions and Importance for the Housing Market
By:Jonas Adams
This ratio is designed to help our clients measure housing demand (as determined by employment growth) and supply conditions. The theory is that job growth creates the demand for more housing. This theory is not perfect, because changes in the work force (such as an increase in dual income households) will tend to overstate demand. Also, second homes and permits that are issued to replace demolished homes tend to overstate supply. Additionally, the ratio is highly dependent on the most recent employment data release, which is frequently subject to fairly substantial revisions. We use the growth over the last 12 months because it is less susceptible to the wild monthly swings. Nonetheless, we believe the ratio is reasonably accurate, especially when comparing metropolitan areas with similar levels of demolitions and second homes.
Historical analysis has shown that home prices and rents are more likely to appreciate when the Demand/Supply ratio is greater than 1.0. Interestingly, the appreciation tends to be greater after several years of exceeding a 1.0 Demand/Supply ratio.
To calculate the Demand/Supply ratio, we calculate the ratio of recent Employment Growth/ housing units created, and compare it to overall total employment / household. We calculate the ratio with and without manufactured housing. If the ratio is greater than 1.0, then there is likely to be more demand than supply, and home prices and rents are more likely to appreciate. The corollary is true if the ratio is less than 1.0.
A ratio greater than 1.0 should indicate that demand is exceeding supply because the ratio of recent employment growth/new housing supply is greater than the benchmark ratio of an area's total non-farm wage and salary employment per housing unit. When employment growth turns negative, this ratio must be interpreted in a different manner. A decline in supply levels (a positive in times of negative job growth) will only cause our ratio to drop further into negative territory, while an increase in supply levels (a negative in times of negative job growth) will cause the indicator to move back toward a ratio of 0.0. In essence, a reverse reading of the indicator is necessary while employment growth remains negative.
Because manufactured housing is difficult to estimate at the metropolitan level (some areas track it, but many do not), it is useful to calculate the Demand/Supply ratio excluding manufactured housing. In areas with little manufactured housing, this ratio is very representative of market conditions. In areas where significant manufactured housing occurs, a ratio that exceeds 1.0 should be considered "balanced." We exclude manufactured housing from our Demand/Supply ratio in our Market Snapshot reports and our U.S. Housing Markets publication because the information is not uniformly available at the metropolitan level.
For more information, please contact
www.hwmarketintelligence.com
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