September 2008

Market Cycles

This quarter I decided to explore the market cycle trends in Multifamily, SFR's (single family residence) and Condo/Townhomes. The trends will include length of cycle, troughs, peaks and spikes.

The Multifamily Market Cycle

The recent market changes have motivated me to identify the most recent market cycles. I looked at two market cycles, a low and high. The low is from trough to trough and the high is peak to peak. I wanted to determine the troughs, peaks, length of cycle and sharpest incline/decline.

I researched the ABoR statistical archives to determine the supply of multifamily units since 2000; two full market cycles have occurred since 2000. Multifamily units include fourplexes, triplexes and duplexes. The supply takes into account the number of sales and the number of homes available at the time.

The supply is determined by the number of months of inventory. This tells you how many months it would take for the current inventory to sell. For example, the current multifamily supply is 8.8 months for the last six months. This means if there were no new listings it would take 8.8 months for the current inventory to sell. The total number of units sold for the last six months was 315, which is equal to 52.5 sales per month. The total number of available properties right now is 463.

For the purpose of my research, I looked at supply in quarterly terms.

The Analysis:

Right now the market in 2008 looks very similar to the market of 2003. It looks like supply is beginning to peak but will probably spike up again in late 2009 before beginning to settle a little in summer 2010, and perhaps transitioning to a sellers market once again in 2011. From history, it looks like the time to buy will be in 2008-2009. The market may show signs of recovery again in 2010 through 2011. Of coarse, the external pressure of the stock market will affect the pattern of Real Estate as did the crash after September 11th by stretching out the slow period by an extra year or two. My feeling is the jump in supply in late 2009 will probably be worse than the one we just experienced in the 1st quarter of 2008 and there could be a third in fall of 2010 similar to 2008. Unfortunately, it’s impossible to know for sure so far ahead. History shows, however, the market will recover and median prices will continue to rise as supply drops during the recovery period.