Market Mismatch - Supply vs. Demand Gap Growing in Dozens of Markets Across the Country

Executive Summary

Parcl Labs developed an open-sourced algorithm, built using its API data, to identify housing markets at risk for correction. This updated analysis identified 6 Florida markets at risk of housing market correction, down from 15 markets (13 in Florida) in the previous report. Key findings include:

1. Supply-demand imbalance: 35 of the US 1,000 markets showed divergence, with supply increases of 20-47% and demand decreases of 10-35%.
2. Price cuts: 9 of these 35 markets exceeded the 33.02% national benchmark for inventory with price cuts, led by Crestview, FL at 43.30%.
3. Price appreciation: 6 of these 9 markets appreciated 50.97-66.45% since March 2020 and have yet to give up 10% gains from their all time highs. All 6 of these markets are in Florida.
4. Emerging corrections: Gainesville, FL and Lakeland, FL have declined 5.67% and 5.20% from peaks, respectively.
5. New construction impact: At-risk markets like Ocala, FL (17%) and Lakeland, FL (15%) show high new construction listings.

Evolution since initial study:

• Focus narrowed from 15 to 6 at-risk markets, all in Florida
• 4 previously flagged markets now show YoY price declines
• Increased volatility in real-time Florida market price feeds
• Expanded analysis on new construction's supply-demand impact

This follow-up reinforces Florida housing market concerns while highlighting dynamic market risks and the value of continuous, data-driven monitoring. Don’t wait until next month to get an update on how this has evolved - access our API to track these dynamics live.

Introduction

Since 2020, the US housing market has experienced sustained home price appreciation. However, cracks are now forming in housing markets across the country, with markets beginning to give back gains from their all-time highs (ATHs).

Last month, we developed an algorithm to identify high-flying markets at risk of a correction (defined as a 10% decline from ATHs). Our report identified 15 markets, with 13 located in Florida. This analysis garnered national attention, cited in ResiClub, Fast Company, Newsweek, Fox Business, and other major outlets.

Building on these findings, we conducted a series of follow-up analyses using the Parcl Labs API. We investigated the drivers of Florida's volatility, focusing on specific sub-markets (coastal regions, condo-heavy markets) contributing to the risk.

Our updated price data reveals that when comparing year-over-year changes from June 2023 to June 2024, 4 of the 15 markets flagged last month have now experienced price declines.

• Gainesville, FL: -2%
• Myrtle Beach, SC: -1.5%
• Lakeland, FL: -1%
• Crestview, FL: -0.5%

For this report, we've rerun the algorithm that kicked off this effort to provide the most current insights on housing markets at risk.

Methodology: Systematically Detecting Early Signals of Housing Market Stress

We leveraged the Parcl Labs API to analyze approximately 1,000 US metros/micros, aiming to identify markets where supply and demand are beginning to diverge (more supply, less demand). Our multi-step algorithmic approach targets "needle in the haystack" markets showing early signs of potential price declines.

Step 1: Supply and Demand Divergence

We identified markets meeting the following conditions:

• Minimum volume threshold: ≥500 sales and ≥500 listings
• Demand decline: Rolling 3-month moving average of year-over-year percentage change in demand ≤ -10%
• Supply increase: Rolling 3-month moving average of year-over-year percentage change in supply ≥ +20%

We used rolling 3-month moving averages to mitigate short-term volatility and provide a more robust indicator of emerging trends.

This initial analysis resulted in 35 markets (out of the original ~1000) across the US.

Step 2: Listing Market Stress

We refined our focus to markets showing signs of stress in the listing market, evidenced by price cuts on listings.

This narrowed our results to 9 markets, with 8 located in Florida and 1 in Alabama.

Step 3: Price Performance Analysis

In the final step, we examined price performance to date. We focused on high-flying markets that have yet to give up significant price gains – specifically, those that have appreciated at least 50% since March 1, 2020, but have given back less than 5% of that price appreciation.

This analysis surfaced 6 markets, all located in Florida .

The following sections detail each step of our analysis and provide additional context on the drivers behind these trends.

Step 1: YoY Changes in Supply vs. Demand Surface Markets with Emerging Imbalance

The scatter plot visualizes the first step of our process, mapping year-over-year changes in supply against demand across U.S. markets as of June 2024. The 35 markets shown met our initial criteria (minimum volume threshold: ≥500 sales and ≥500 listings; demand decline: ≤ -10%; supply increase: ≥ +20%). This visualization helps identify areas where these metrics of supply and demand are diverging, indicating market stress.

The data reveals a widespread trend of increasing supply, ranging from 20% to 47%, coupled with decreasing demand, spanning -10% to -35% across U.S. housing markets.

Pensacola, FL emerges as the most extreme case, with a staggering 47% supply increase against a 30% demand decrease. Close behind is Knoxville, TN with a 42% supply surge. These outliers underscore that while Florida markets dominate the upper echelons of supply-demand imbalance - particularly in terms of supply surges, the phenomenon isn't geographically isolated.

A cluster of Florida markets consistently populates the high-supply, decreasing-demand quadrant, including Sebastian, Naples, Gainesville, and Miami. However, the presence of markets like Fayetteville, NC and Spokane, WA in this group indicates a broader trend spanning multiple regions.

Several Midwest markets stand out for their unique patterns. St. Louis, MO showcases the largest demand decrease while maintaining a moderate supply increase. Dayton, Cincinnati, and Boise also exhibit notable imbalances.

The bar chart below provides a complementary view of the supply and demand dynamics across the markets meeting our initial criteria, ranking them based on the magnitude of supply growth relative to demand reduction. The visualization reinforces the scatter plot findings.

Pensacola, FL stands out at the far right of the chart, with the most extreme spread: a 47% supply increase coupled with a 26% demand decrease. Following closely are other Florida markets like Sebastian, Naples, and Gainesville, all showing supply increases above 35% and demand decreases between 15-20%. However, the chart also highlights non-Florida markets with notable imbalances, such as Knoxville, TN (42% supply increase, 11% demand decrease) and Fayetteville, NC (38% supply increase, 12% demand decrease), supporting the observation that this trend extends beyond Florida's borders.

Step 2: Rising Price Cuts Highlight Markets Under Stress

The next step in our analysis was to hone in on the behavior of the supply, as evidenced by price changes in listings. This approach allowed us to identify markets showing signs of stress in the listing market.

From our initial list of 35 markets, we've identified 9 markets exhibiting significant price cuts on listings, all surpassing the national benchmark. 8 out of 9 of these markets are located in Florida, with the other being Daphne, AL.

Here are the 9 markets listed in descending order based on the percentage of active inventory with price cuts as of July 22:

1. Crestview, FL (43.30% inventory with price cuts as of most recent data)
2. Lakeland, FL (42.79%)
3. Gainesville, FL (42.65%)
4. Naples, FL (42.5%)
5. Deltona, FL (42.37%)
6. Ocala, FL (40.88%)
7. Sebastian, FL (40.63%)
8. Daphne, AL (40.02%)
9. Miami, FL (38.68%)
10. (USA benchmark: 33.02%)

Step 3: Cracks Are Emerging in Markets That Have Significantly Appreciated Since 2020

The final step in our algorithm was to understand the price impact of the emerging supply and demand dynamics. We focused on markets that have experienced substantial appreciation (50%+) since the start of the pandemic (March 1, 2020).

This step surfaced 6 markets out of the 9 that met both the supply/demand divergence and price cut criteria:

Price Appreciation Since March 2020 (As of June 2024):

1. Miami, FL: 66.45%
2. Naples, FL: 66.44%
3. Ocala, FL: 63.28%
4. Deltona, FL: 56.30%
5. Lakeland, FL: 52.86%
6. Gainesville, FL: 50.97%

• USA Benchmark: 47.67%

All of these markets have significantly outperformed the US benchmark. Miami, FL has appreciated 18.78 percentage points more than the national average, while Gainesville, FL (the lowest in our list) has still outperformed the national average by 3.30 percentage points.

Price Appreciation and Correction from Peak (As of June 2024):

This data reveals that while all six markets have experienced significant appreciation since March 2020, some are beginning to show signs of price correction. Out of these 6 markets, Gainesville, FL and Lakeland, FL have given back the most from their peaks, while Miami, FL and Naples, FL have not yet shown any decline from their peak values.

Signal From Real-Time Price Feeds:

We have real-time price feed coverage for three of these markets, enabling us to analyze trends up to July 24, 2024.

As of this date, Miami, Deltona, and Lakeland are all experiencing downward price trends.

The data highlights increasing price volatility in Florida markets throughout 2024, particularly evident in Deltona and Lakeland. This volatility marks a departure from the relatively stable appreciation observed in earlier years and could indicate growing market uncertainty. These real-time insights suggest that the subtle "cracks" identified earlier in our analysis are evolving across markets.

Conclusion

Our data-driven analysis efficiently narrowed down from 1,000 U.S. markets to 6 key Florida markets warranting close monitoring, providing continued quantitative support for concerns about Florida's housing market.The Parcl Labs API enabled this comprehensive analysis in just one day, a task that traditionally would require weeks of effort and multiple teams. By leveraging the API and our algorithm, we can continuously update our findings, allowing for dynamic, real-time market monitoring as demonstrated in this month's update.

This capability ensures that we can track emerging trends and identify markets meeting our criteria as conditions evolve. For example: what’s the impact of new construction on supply?

Notably, our analysis of new construction's impact on supply reveals interesting overlaps between our identified at-risk markets and those with high percentages of new listings from new construction. Ocala, FL, one of our identified markets, leads with over 17% of new listings from new builds. Lakeland, FL, another market in our analysis, shows approximately 15% new construction listings.

Some non-Florida markets identified in Step 1 (supply-demand divergence) like Boise City, ID and Spartanburg, SC top the list for new construction percentages. This influx of new inventory could impact the supply-demand balance in these markets, potentially exacerbating existing market stresses.

We will continue to monitor these trends closely. The Parcl Labs API offers a powerful tool for those interested in conducting similar in-depth, real-time housing market research.