February 2024 Erdmann Housing Tracker and Residential Construction

Unfortunately, I would say that the potential California supply miracle I had hoped to have seen starting back in 2022 has all but completely dissipated. Sacramento shows some hope, but really that’s about it.

Figure 1 shows the cyclical changes and the supply-related changes in average home prices in the 30 largest metro areas since June 2022. A dot to the left of the y-axis has improved its supply conditions. A dot below the x-axis has some sort of cyclical downturn - a reduction in population growth, local incomes, etc.

Figure 1

San Francisco is experiencing a pretty steep cyclical downturn. As I explained in last month’s update, San Francisco and New York City have been experiencing some outmigration from their dense cores due to Covid/work-from-home trends (and probably in San Francisco some well-known social issues). Since the densest neighborhoods are where the poorest residents live in cities with dense cores, that relieves pressure on prices in the poorest neighborhoods. That gets picked up by the tracker as a supply improvement, but in this case I think it is a spurious correlation.

This anomaly is an unusual result of intensive short-term migration trends, so I haven’t gone to the trouble of adding some complicated density control variable to my model. My best estimate is that the entire apparent supply improvement in New York City is a false signal. And most of the improvement in San Francisco is, though San Francisco probably has seen a slight decline in supply-related prices.

Austin, of course, as always, is the true superstar. Austin has had a big cyclical drop, but unlike San Francisco, that has mostly been a reversal of the Covid boom. The model says that Austin is back to cyclically neutral, and maybe a bit below, so it should start levelling out. Austin also has the best supply reading. Austin has had the best record on supply. They are approving a ton of apartments, and it’s not slowing down. So, prices have declined there by about 7% due to supply improvements, and on that axis, I expect further improvement.

Phoenix is also looking great on supply, and also has been approving a lot of apartments, though not nearly as much as Austin on a per capita basis. Seattle, Portland, Denver, San Antonio, and Las Vegas look ok. And, even though I have pushed back against the cheerleading for Minneapolis, it doesn’t look half-bad. Chicago and Philadelphia have also shown some supply improvements, though their population growth is not as difficult to keep up with.

More below the paywall. And also the February Residential Construction update.