Housing Demand

Market Analysis for Real Estate Appraisers – Part 4

This is part four of a 5 - part series on Market Analysis for Appraisers. A new part will appear each day. Thus far we’ve covered the “who, what and when” of market analysis, now lets look at the “where.”

In parts 2 and 3 we collected data on the market and can now develop a basic housing demand model for the Las Vegas MSA. Now it’s time to see where it fits together to develop a housing demand forecast.

This is an employment driven model with 2006 employment based on the current estimates by the Center for Business & Economic Research at UNLV. Use the chart to follow the calculations.

Note: You'll find "step by step" instructions after the chart as this article continues. Also, "click" on the chart to enlarge it. The numbers may be hard to read in some browsers. 

Enter in the known figures and selecting ratios.

• · Current employment estimate from UNLV = 918,000
• · Population Estimate = employment x 2.05 population to employment ratio.
• (not in the chart but you can extract it) Population Estimate = 1,881,900
• · Housing stock from 2005 Assessor’s Counts = 704,829
• · New Home Sales June YTD = 18,676
• · Total Re-sales June YTD = 23,305

Estimate unknowns from stable years – 2001- 2002 most similar conditions.

• Pop to Home Ratio 2.54 to 2.56
• Effective Vacancy from Housing Vacancy Surveys 2000-02 = .06
• Sales as a % of Employment, Population & Households = .08, .04 & .011 each X population estimate (1,881,900) to get range of demand = 73,440, 75,276 and 75,694 – select 75,000
• Estimate Households = (1 – 0.06) or 94% of Total Units = 688,131.
• Demand = Population / Pop-Home Ratio or 1,881,900 / 2.54 = 740,906
• Housing expected = Demand – Existing or 740,906 – 704,829 = 36,077
• Re-Sales = Total sales (75,000) – new homes (36,077) = 38,923

Benchmarks

• YTD New Sales = 18,676 / 6 = 3,113/month x 12 = 37,356 vs. estimate of 36,077, considered reasonable, as sales rate typically drop off some July-December.
• Re-sales YTD = 23,305 / 6 = 3,884/month x 12 = 46,610 vs. estimate of 38,923. Difference = 7,687 which represents early year condo-conversions, activity slowed and will not repeat at same rate in second half of this year. 

Will this be accurate? Appears reasonable at this point, we’ll see in several months.

In the last segment, we’ll take a look at a few good reasons to understand your marketplace.

Prior Installments:

• Part 1: Looking Back to the Future …
• Part 2: Cause and Effect – Trends & Relationships
• Part 3: Multipliers – Economic Development & Diversification
• Part 4: Housing Demand

Author: Patrick Egger, Stewart Title of Nevada, is a Certified General Appraiser and the creator of several Real Estate CE Classes including "DeMystifying the Appraisal - Appraisal Techniques for the Real Estate Agent" and "Understanding the Las Vegas Marketplace - Market Analysis for Real Estate Professionals" from which this article was excerpted. He also has his own blog - InTouch. Contact: [email protected]