The AEI Housing Center’s Market Trends Report (MTR)
Please click here to access the Market Trends Report (MTR) application.
What: The Market Trends Report (MTR) provides current and historical market trends at fine levels of geography. The MTR provides general local market trends information and is not an appraisal or valuation report.
The MTR is provided by the American Enterprise Institute as a free public service. Our goal is to advance understanding in the marketplace as to the trends impacting home prices, fundamentals to value, and market risk.
Why: If all borrowers paid cash or made a substantial down payment, the difference between price and value would be much less of a cause for concern. But in today’s home finance market, leverage (including credit easing by way of lower rates) and supply imbalances do matter, as these can have a large impact on price.
Prices are driven by supply and demand and therefore may prove to be volatile and speculative, while values are determined by trends related to market fundamentals. Fundamentals included in the MTR are rents, construction cost, new supply, and wages. At the same time, tracking these trends over a period of many years is also important. Most MTR- tracked trends go back at least 9 years and will extend as time goes on.
The following core principle regarding sales price and intrinsic value has never been more relevant.
“If a new utility does not arise, [sales] prices may advance and recede, while intrinsic values do not change. If a new utility arises, both [sales] prices and intrinsic values will alter their levels.”
Hurd, The Principles of City Land Values, 1903
The technology-enabled shift to Work-from-Home (WFH), spurred on by the pandemic, presents a change in utility for vast portions of the country. Given large pricing disparities within and across metros, WFH renters and buyers are presented with a massive arbitrage opportunity. Within a metro area there are substantial pricing disparities (think core San Jose vs. the outskirts). The same is true among different metros or regions (think San Jose vs. Sacramento or Phoenix). Thus mover may improve housing conditions (larger gross living area and lot) and simultaneously reduce the cost. In Hurd’s words, the outskirts of San Jose and the metros of Sacramento and Phoenix now have a new utility as it relates to a WFH employee of a San Jose company and this change in utility may alter both sales prices and intrinsic values in these areas.
How: The MTR application may be accessed free of charge at: aeimarkettrends.com. An MTR is launched by inputting a property address along with an estimate of value (you may also default to a Zillow Zestimate of value). The estimate of value is needed to determine the property’s prier tier. Our research has found that home price appreciation, supply and demand, mortgage risk, and new construction supply are all sensitive to price tier within a local market. In terms of price tiers, the MTR uses these price bins (i) low, low-medium, medium-high, and high and (ii) entry level (low and low-medium bins combined) and move up (medium-high and high bins combined).
Please see this document for more information.
Feedback: Please send your comments or suggestions to [email protected].
Please click here to access the Market Trends Report (MTR) application.