Top 75 Building Markets Scorecard

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Top 75 Building MarketsScorecard

• Tom Flynn
• President, Hanley Wood Market Intelligence

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Topics For Today

• Brief Review of Current Market Conditions and
  Challenges

Best Indicators for Local Market Conditions
Top 75 Market Scorecard
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Housing Supply/Demand Market Fundamentals

• Historically, job growth is a primary driver of
  demand for housing, including new construction.

However, factors such as rising prices and higher
mortgage rates are adversely affecting demand.
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Job Growth Moderate But Steady
2Q06 1.39
Y-O-Y non-farm employment not seasonally adjusted
5
Although Long-Term Mortgage Rate Trend Shows Only
Modest Increases
Short-term Jump Still Significant
Source Freddie Mac, Federal Reserve Board,
Fannie Mae forecast
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Increases in Prices and Mortgage Rates Have
Lowered Affordability
Recent Rate Drops Provide Some Relief
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New Home Inventories Soar, Suggesting Price Is
Hampering Demand
Months
Thousands
600
10
Months Supply at Current Rate (right axis)
9
550
8
500
7
450
6
400
5
4
350
3
300
2
250
Homes for Sale at End of Month (left axis)
1
200
0
Jun-90
Jun-91
Jun-92
Jun-93
Jun-94
Jun-95
Jun-96
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Source Bureau of the Census
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Annualized Home Price Appreciation1Q 2001 1Q
2006
9
Standing New Home Inventory

• Year Over Year Percent Change

SOURCE HANLEY WOOD MARKET INTELLIGENCE
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So When Will The Market Turn Around?

• Inventory is key. When inventory starts to fall,
  it will be a leading indicator that the market is
  recovering.
• Prices will likely need to drop in most market
  areas, if only in the short term, to spur enough
  purchase activity to consume excess inventory.
  When prices stabilize or start to slowly increase
  again, it will be another sign that the market is
  back in balance.

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So Many Indicators, So Little Time

• Which Tools Are Best For Examining Local
  Conditions?

• Housing Supply
• Building Permits
• Housing Starts
• Housing Growth Ratio Market Hotness (HWMI
  Index)

• Housing Demand
• Employment Growth
• Unemployment rate
• Homeownership rate
• Household income
• Employment/Permit Ratio (HWMI Index)

• General Economic Indicators
• Real GDP Growth
• Leading Economic Indicators
• Inflation (Consumer Price Index)
• Mortgage Rates
• Consumer Confidence
• NAHB Housing Market Index
• Personal Income Growth Rate

• Market Performance Indices
• Home Prices
• Sales Volume
• Months of Inventory
• Affordability Ratio
• Purchase Mortgage Applications

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Definitions of Indicators

• Permits Issued
• The absolute volume of residential construction
  permits issued in a market.
• Per Capita Permit Issuance
• A measure of how fast a market is growing
  relative to population.
• Jobs/Permits Ratio
• A measure of 12-months of jobs and permits
  compared to the overall balance of employment and
  housing in that market.

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Full ScorecardTop 75 MarketsAvailable in
thehandout followingthe speech
SCORECARD
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Above-Average Per Capita PermitsWhere Jobs
Exceed Permits
SCORECARD
Take Away Solid Demand, Faster Delivery
Positive Long-Term Outlook
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Below Average Per Capita PermitsWhere Jobs
Exceed Permits
SCORECARD
Take Away Solid Demand, Slower Delivery
Opportunity for Future Growth
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Below Average Per Capita PermitsAnd Where
Permits Exceed Jobs
SCORECARD
Take Away Weaker Demand, Slower Delivery
Need Job Growth To Expand
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Above Average Per Capita PermitsBut Where
Permits Exceed Jobs
SCORECARD
Investor Hotness Ranking
Take Away Weaker Demand, Faster Delivery
Watch for Oversupply
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Big PicturePermit Volume Landscape
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Big PictureMarket Growth Varies Across the U.S.
Green More Jobs Than Permits Red More Permits
Than Jobs Black Growing Faster than Solid
Colors
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More Jobs Than Permits
Less Per Capita Permits
More Per Capita Permits
More Permits Than Jobs
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More Jobs than Permits
FLASHBACK to Markets in 2001
Fort Lauderdale
Fort Myers
Phoenix
Dallas
Washington DC
Naples
Atlanta
Houston
Chicago
Las Vegas
TREND
Less Per Capita Permits
More Per Capita Permits
Naples
Ft. Myers
Market Heading Up Improving Job
Growth Market Heading Down Declining Job
Growth Market Heading Right Permits Growing
Faster Market Heading Left Permits Growing
Slower
Washington DC
Ft. Lauderdale
PHOENIX
DALLAS
CHICAGO
LAS VEGAS
HOUSTON
ATLANTA
More Permits than Jobs
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Ft. Lauderdale
More Jobs than Permits
Salt Lake City
Seattle
W. Palm Beach
Los Angeles
Minneapolis
Washington DC
Central NJ
Pittsburgh
Naples
Philadelphia
Baltimore
Reno
Tucson
Albuquerque
San Francisco
PHOENIX
San Diego
DALLAS
Omaha
Sarasota
Sacramento
Daytona Beach
NEW YORK
Oklahoma City
Charleston
McAllen
Columbia
Denver
Boise
Orange County, CA
Colorado Springs
Tampa
Virginia Beach
Portland
Boston
Louisville
Raleigh
Less Per Capita Permits
Nashville
More Per Capita Permits
HOUSTON
CHICAGO
Orlando
LAS VEGAS
Kansas City
Charlotte
Ft. Worth
Birmingham
Jacksonville
Milwaukee
Wilmington, NC
Cincinnati
Stockton, CA
Bakersfield
Fayetteville, AR
Austin
Ft. Pierce
Memphis
Columbus
ATLANTA
Ft. Myers
St. Louis
Melbourne
Miami
RIVERSIDE-SAN BERNARDINO
Richmond
Lakeland, FL
Myrtle Beach
San Antonio
Cleveland
Fresno, CA
Indianapolis
Detroit
Northern NJ
Greensboro, NC
More Permits than Jobs
New Orleans
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Outlook Take Aways

• For manufacturers, construction volume remains
  paramount.
• Oversupply may result in slowdown, but large
  markets will retain substantial volume.
• Markets with increasing job growth are more
  likely to see an increase in permits if
  affordable land is available.
• Small markets can be growing very rapidly but
  still not represent significant construction
  volume.

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One last thought

• Total U.S. Residential Permits Issued, 1996-2006

SOURCE U.S. CENSUS BUREAU
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Want to Know More?Hanley Wood Market
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