Sunday, July 20, 2008

Localized Housing Bubbles: The Distribution of Inventory

My last post took a hometown look at the variation in the distribution of troubled housing. In this post, we'll zoom outward for a national view.

Based upon population data of top 100 U.S. cities, I selected three pairs of very similar-sized cities:

* Atlanta (population 519,145) and Albuquerque (population 518,271)
* Miami (population 409,719) and Omaha (population 424,482)
* Las Vegas (population 558,880) and Louisville (population 557,789)

I then went to the site and looked up the total number of units for sale in each city, in each of three categories:

* Single family homes
* Condominiums
* Multi-family homes

The data are charted above. Note that the total number of units for sale in Atlanta, Miami, and Las Vegas are large multiples of the number for sale in Albuquerque, Omaha, and Louisville. As we saw in the prior post, the formerly hottest real estate markets are the ones with the greatest inventories. Those, to be sure, are also the markets that have seen the largest price drops. Observe, however, that--even after these drops--they continue to sport monster inventories. It is difficult to imagine that the housing crisis is near an end in these areas.

Also note the differences of the distributions among the various units. Condominiums comprise well over half the total inventory in Miami and about a third of the inventory in Atlanta. In Albuquerque, Omaha, and Louisville, condos are a significantly smaller share of the inventory. It appears that condominium speculation is a good part of the housing bubble, but not the whole thing. Las Vegas, for instance, simply has a glut of single family homes--more than 3x the number for sale as in Louisville.

Once again, it's the lumpiness of the data--the extreme variation--that characterizes this housing crisis. It's not that the general housing market is in decline. Rather, some areas are soft and others are wildly overbuilt, to the point where it is difficult to see how they will be sold. Are more than 37,000 households likely to move into Miami--a city of a little over 400,000 people--in the foreseeable future, particularly when they'd be buying into a falling market and finding it difficult to get financing? There are many, from builders to banks, that are hoping the answer is yes. For my part, I'll cast my lot with Omaha.