Our friends at JB have been on the forefront of market tracking for years now. They have staff that travels around the country to gather data from builders in particular, and have built a tremendous network.
I don’t mind being labeled as ‘slowing’ because…..well, I guess it beats falling!
Their definition of Slowing:
Markets in the Slowing phase face alarming affordability levels, decelerating (or even declining) home price appreciation, and rapidly slowing sales—making capital investments less attractive. Several of these slowing markets were among the first to recover from the initial COVID panic in April 2020.
-
- In-migration and job growth, fueled by the proliferation of work-from-home policies, set these markets apart as higher wage workers relocated due to the relative affordability—most notably Dallas, Jacksonville, and Raleigh-Durham.
- Current employment is well above prior peak levels in all of these markets. While strong job growth from high-wage sectors has buoyed these markets, it has also been the primary driver of their now strained affordability, with a significant number of locals now completely priced out of ownership.
- YOY home price growth is decelerating rapidly, and construction volumes are pulling back from very high levels.
Their business focus is tilted towards builders and new homes, but their analyses about the general market conditions are applicable to the resale market too.
https://www.realestateconsulting.com/the-light-current-housing-cycle-landscape/
Each area will have several variables that makes it unique, but we are a society that wants to label everything with one word. I have one word for you – auction. If an auction company took over real estate, we wouldn’t need opinions, analyses, or realtors!
I think we could be in this category too:
Plateauing
Markets in the Plateauing phase have seen significant capital investment over the past 12–24 months and are now faced with limited volume growth and decelerating home price appreciation, leading to shrinking capital returns, or underwriting becoming extremely aggressive in order for deals to pencil.
Atlanta, Charlotte, Indianapolis, Orlando, and Tampa experienced significant home price appreciation, in-migration, and job growth during the pandemic (prompted by buyers searching for affordability). Conversely, higher mortgage rates and slower economic growth have caused buyers to drop out of the qualified buyer pool or pause their home search until there is less uncertainty around the economy.
Miami and New York faced an urban exodus throughout the first 18 months of the pandemic, fueling out-migration and a much slower labor market recovery, but the population has been returning lately. These markets face physical supply constraints, which limits any potential housing market growth.
We aren’t here because our resale supply is shrinking. You could also blame the ‘skyrocketing’ supply on the quality of realtors:
Falling
Several major markets have now reached the falling phase of the cycle, characterized by flat or declining prices, limited capital investment, and shrinking housing demand.
Despite being among the largest resale markets in the country, new home construction in Chicago and Minneapolis, whose recoveries lagged in the post-GFC expansion, struggled to take off during the pandemic-fueled housing boom. These economies continue to underperform, and we worry about significant out-migration and sustained population loss.
Austin, Sacramento, and Salt Lake City, all standouts for in-migration and robust, tech employment demand / job growth throughout the pandemic, have reversed course quickly.
Phoenix and Riverside-SB have also reversed course quickly, in part due to significant speculative investment that drove prices up quickly. They also benefitted tremendously from the industrial building development boom that has now cooled.
Sales are dropping and resale supply is skyrocketing, driving home price appreciation down fast, with home values now falling month over month. Single-family construction activity has pulled back, as many builders in these markets are reluctant to open new communities during a downturn.