Tracking recent trends in home price and for-sale permits - are there signs of looming pricing changes?
I wanted to share a map showing the interplay between recent changes in home prices and for-sale home building permits. It sheds light on recent market movement, and perhaps portends what’s to come next year.
Housing market movement is heavily dependent on supply and demand dynamics, especially in the short-term. That’s why I am always interested in the latest building permit data, because it’s like a glimpse into a key component of next year’s supply. If we combine this with recent price movements, which serve as a quick and dirty proxy for current demand, we may be able to get important clues about future price movements.
This map summarizes home price 1-year change (i.e. today’s price vs 1 year ago) per Zillow, and year-over-year buildings permits changes (i.e. May 2023-May 2024 vs May 2022-May 2023). Importantly, this only looks at those permits expected to become for-sale units. More on how we determine future for-sale permits below.
Each county is categorized by its home price change and its for-sale supply change. Combined, these two factors lend themselves to some predictions about future price change.
- Dark green counties have rising prices, but slowdowns in for-sale permits. These are counties where, all other things being equal, existing current demand could be compounded by diminished supply, creating future price growth pressure.
- Light green counties have rising prices but are likely to see a supply increase in the coming year. These are counties where demand and supply are likely high, allowing for possible slowdowns in price growth
- Yellow counties have seen price declines of late, and the market seems to have responded by slowing the pace of new permitting, which in turn should lead to lower supply. This could lead to a reversal in price losses in the coming years.
- Red counties are already seeing prices go down – which may suggest sagging demand - while also seeing future supply rise. These places are most at risk for further declines in home prices.
I’m the first to admit that there are a lot of other factors that influence housing prices, especially in the long run. But this map may end up being a pretty good picture of things to come in the for-sale market. I’ll be doing some historial analyses of these datasets, to see if there is any predictive power here for investors. I’ll keep you posted.
(**For those interested in methods and sources, a quick summary. The home prices I’m using here are from Zillow’s Home Value Index. The permit data comes from the Census Building Permit Survey, which reports on the number of single-family and multi-family housing unit permits. To estimate how many units are likely to be owner-occupied, and thus relevant to home prices, I applied the current proportions of each county’s single-family and multi-family unit owner-occupancy rate to the permit data. So, for example, if 85% of existing single-family homes in Mecklenburg County, NC are owner-occupied, we assume 85% of 1-unit permits will be owner-occupied in the future, and we do that for each category of permits)