US Market Landscape Largely Unchanged Month on Month — Florida Supply-Demand Gap Stabilizing, Hurricane Effects a Wildcard

Executive Summary

This report is the fourth installment of Parcl Labs' US Housing Supply Demand Landscape, leveraging the most real-time data in the real estate industry. This report highlights key residential real estate themes, focusing on shifting supply and demand trends identified by our open-source Distressed Market Identifier Algorithm.

What’s changed since our September report

Supply demand coming more into balance. Month on month, trends have not moved dramatically, but nationally, the supply demand gap has decreased modestly from 45% to 40%. Additionally, key laggards have also stabilized.

Florida is not getting worse, but data excludes any hurricane impacts. Florida, as a region, continues to have the largest gap with respect to supply and demand; however, trends haven’t gotten worse month over month. In fact, the gap has decreased modestly in key metros like Tampa, Miami and Orlando. That said, these figures do not reflect any impact related to hurricane Helene and Milton which created historic damage. Its too early to tell how much supply has come offline and how demand will react given the nature of these storms and insurance premium hikes.

Net new weakness is scattered across the country. New regions flagged for weakness in our analysis were in a diverse set of regions and include: Sacramento, CA, Dayton, OH, McAllen, TX Albuquerque, NM. Note that demand growth in McAllen was particularly weak (-35% y/y vs the national average of about 10%) We will continue to monitor these regions to see if the data begins to form a trend worth exploring deeper.

The national price cut rate rose slightly from 36.77% to 36.95% of inventory since last month, with all 17 identified markets exceeding this benchmark. Using the moving average of the last 3 weeks of data, Florida leads, though Tampa's rate dipped to 49.49% (from 51.17%). Denver, flagged last month as an emerging concern, increased from 45.96% to 47.82%. Texas markets showed reduced price cuts (Dallas from 47.11% to 41.08% driven largely by influx of new inventory and Houston from 39.36% to 38.89%) despite ongoing sales declines, suggesting current adjustments may not yet meet buyer expectations.

Parcl Labs continues to lead in real-time housing market research, with our API-based, algorithm-driven insights recently featured prominently in the Wall Street Journal's Florida housing coverage. Our open-source methodology underlying this report enables live monitoring and analysis - access it here.

Introduction

The U.S. housing market landscape is shifting rapidly, challenging the steady appreciation observed in many markets since 2020. As highlighted in our previous reports, evolving supply-demand dynamics are now putting this upward trajectory at risk.

To shed light on this situation, we developed an algorithm based on the Parcl Labs API to identify high-flying markets at risk of price correction. Our previous reports generated via this algorithm garnered national attention. Most recently, the Wall Street Journal has made our findings from last month a central part of its reporting on the Florida housing market.

We've refined our methodology to pinpoint at-risk markets more precisely. Our focus remains on supply-demand imbalances, but we've updated our price cut analysis to capture more recent market shifts. Our algorithm’s latest run flagged 17 of the top 100 U.S. markets for attention—13 consistent from last month and 4 new. This report analyzes supply, demand, price cuts, and price performance across these markets. Let's examine the findings.

Supply-Demand Gaps Persist with Minor Narrowing: Knoxville Leads at 74%, New Dispersed Markets Emerging

Our algorithm continues to reveal significant supply-demand imbalances across 17 U.S. housing markets. The US national gap stands at 40.34%, with a 28.93% supply increase against an 11.41% demand decrease. This result represents a modest improvement from last month's 45% gap, a trend reflected in our at-risk markets as well.

Knoxville, Tennessee maintains its lead with a 74.31% gap (63.42% supply surge, 10.88% demand drop). Denver, Colorado (67.63% gap) and Tulsa, Oklahoma (66.99% gap) follow closely, underscoring the persistent nature of their imbalances.

Florida markets, while still significantly out of balance, show signs of relative stabilization:

1. Palm Bay: 63.65% gap
2. Tampa: 62.31% gap
3. Orlando: 59.73% gap
4. Lakeland: 56.12% gap
5. North Port: 56.03% gap
6. Miami: 52.67% gap

All six Florida markets have seen their gaps tighten since last month. However, hurricane impacts on Florida's housing market remain uncertain, with potential supply disruptions and demand shifts due to historic damage and expected insurance premium hikes not yet reflected in current data.

Texas markets, also flagged last month, continue to show imbalances:

• McAllen: 63.14% gap (26.52% supply increase, 36.62% demand decrease)
• Dallas: 54.66% gap (35.39% supply increase, 19.26% demand decrease)
• Houston: 51.06% gap (31.07% supply increase, 19.99% demand decrease)

McAllen, a new addition to our list, exhibits the most severe demand decrease among all analyzed markets, signaling potential distress.

Notably, new regions flagged for weakness are geographically diverse, including Sacramento, CA, Dayton, OH, McAllen, TX, and Albuquerque, NM. This scattered pattern of emerging weakness suggests that supply-demand imbalances are not confined to specific regions.

These findings highlight markets at risk due to significant supply-demand imbalances. When combined with price cut activity, these markets emerge as those most vulnerable to potential price declines.

Price Cuts Tick Up: Denver Joins Florida Markets with 45+% of Listings Reduced

Our price cut data reveals how sellers are responding to market pressures across the 17 identified markets. This metric is a key component of our algorithm, highlighting areas where sellers show increased willingness to reduce prices.

As of October 7, 2024, the national average for price cuts stands at 36.95% of inventory, up from 36.77% when compared to the last 3 weeks of data from last month. All 17 identified markets exceed this national average, with several standouts:

Florida markets continue to lead in motivated sellers with 5 out the 6 top markets in terms of price cutting activity:

• Tampa, FL: 49.49% (down slightly from 51.17%)
• North Port, FL: 45.81% (down from 49.28%)
• Orlando, FL: 45.45% (up from 43.95%)
• Lakeland, FL: 45.23% (up from 44.91%)
• Palm Bay, FL: 44.56% (up from 41.80%)

We'll continue to closely monitoring Florida price cutting after recent hurricanes to assess their impact on market dynamics.

Denver and Knoxville, which we featured as our net new concerns last month, are now seeing intensified price cutting:

• Denver, CO: 47.82% (up from 45.96%)
• Knoxville, TN: 42.08% (up from 40.49%)

Texas presents an interesting contrast. Despite persistent year-over-year sales declines, price cuts have actually decreased in key markets:

• Dallas, TX: 41.08% (down from 47.11% last month)
• Houston, TX: 38.89% (down from 39.36%)
• McAllen, TX: 37.26% (up from 35.15%)

The persistence of price cuts in many markets, coupled with the supply-demand imbalances we've identified, raises a critical question: Are these pricing pressures translating into actual price declines? In the next section, we'll examine the price performance data across our 17 identified markets to understand how these market pressures are impacting home values.

Price Performance: Eight Markets Within 2% of Peak Values Despite Pressures

Our analysis of supply-demand imbalances and seller motivation sets the stage for the critical question: Are these market pressures translating into actual price changes? To answer this, we examine the price performance data across our 17 identified markets.

September 2024 data reveals varied price responses across our identified markets:

Resilient Markets: Despite high supply-demand imbalances and increased price cuts, 8 out of 17 markets are within 2% of their peak values. Charlotte, NC and Dayton, OH maintain peak values (0% change), while Palm Bay, FL (-0.38%), Orlando, FL (-0.59%), Knoxville, TN (-1.83%), Albuquerque, NM (-1.15%), Tulsa, OK (-1.14%), and Oklahoma City, OK (-1.76%) show minimal declines. This resilience is particularly surprising for Palm Bay and Knoxville, given their high levels of price cut activity and significant supply-demand imbalances we noted last month.

Significant Declines: North Port, FL and Denver, CO, which we highlighted last month for their worsening conditions, now exhibit the largest drops from their peaks at -8.23% and -4.15% respectively. Lakeland, FL, another Florida market we've been watching closely, is showing a more significant adjustment at -5.09% from its peak.

Moderate to Minimal Adjustments: Tampa, FL, which has consistently shown high levels of price cuts in our reports, is now showing a decline at -3.15% from its peak. Dallas, TX (-3.90%), Sacramento, CA (-2.92%), and Houston, TX (-2.83%) show modest declines.

Table: Price Changes in Distressed Markets

Month-over-month changes vary widely, from a 3.03% increase in Dayton, OH to a 1.76% decrease in Oklahoma City, OK.

Overall, comparing to our last report, we're seeing the price declines we anticipated in markets like Denver and Tampa materialize. However, other markets we flagged, such as Knoxville and Texas (Houston and Dallas) are showing surprising resilience.

Signal From real-time price feeds:

We have real-time price feed coverage for 13 of these markets, enabling us to analyze trends up through October 14, 2024.

In the past two weeks, Denver recorded a 0.6% decrease in home values, while Houston and Dallas saw increases of 0.9% and 1.3%, respectively. Nationally, home values decreased by 0.3%. Lakeland, FL showed a 0.1% increase. These figures indicate a deceleration compared to previous months, with minimal changes in home values across most markets.

The data suggests a broad cooling trend, with most tracked markets showing minor increases, reflecting reduced momentum in price growth.

Conclusion

Our refined algorithm identified 17 at-risk markets out of the top 100 U.S. markets, revealing complex dynamics between supply-demand imbalances, price cut activity, and price performance.

These findings underscore the importance of continuous, granular monitoring. The Parcl Labs API enables real-time tracking of supply, demand, price cuts, and new construction impacts, remaining important for timely, in-depth housing market research as conditions evolve.

Methodology (Appendix)

Methodology is completely open source. Review, run it, and build on it here.

Data Source and Market Coverage

• Primary data source: Parcl Labs API
• Property types: All residential properties, including single-family homes, condos, townhouses.
• Geographic scope: 100 largest U.S. metropolitan areas by population

Algorithm Structure

1. Supply-Demand Divergence Analysis
   • Calculate monthly year-over-year (YoY) percentage change for:
     • Supply: Total for-sale inventory
     • Demand: Number of completed sales transactions
   • Apply 3-month moving average to smooth short-term fluctuations
   • Compute supply-demand change differential
   • Select markets meeting both criteria:
     • Minimum volume threshold: ≥500 sales AND ≥500 for-sale inventory
     • Supply-demand gap: >50% (supply change exceeding demand change)
2. Price Cut Activity Filtering
   • Calculate percentage of inventory with price cuts for each market
   • Apply 3-week moving average to price cut percentages
   • Compare each market's moving average to the national benchmark
   • Select markets exceeding the national average price cut percentage
3. Market Risk Identification
   • Combine results from steps 1 and 2 to identify at-risk markets
   • Analyze additional metrics for comprehensive assessment:
     • New construction impact: % of new listings from new construction
     • Price change trends: Time series of % inventory with price reductions
     • Home value appreciation: % change in home values since March 2020

Price Performance Analysis

• Monthly analysis: Median price per square foot of sales in each metro (August 2024)
• Real-time analysis: Daily price feed data for markets with available feeds

Methodological Notes

• All percentage changes and moving averages are calculated using consistent time periods across markets
• The algorithm adjusts for market size and activity level through volume thresholds
• Price cut moving averages smooth out weekly volatility for more reliable trend identification. We also conduct an additional outlier revision to weed out markets with unusual shifts.
• The methodology captures both long-term trends (since pandemic onset) and current market conditions

This methodology provides a robust framework for identifying markets with significant supply-demand imbalances and elevated price cut activity. By incorporating multiple data types, property categories, and analytical approaches, it offers a comprehensive assessment of market dynamics and potential risks in the U.S. residential real estate market.