Magazine article Mortgage Banking

Hot or Not? Sometimes Analysts Disagree on Which Housing Markets Are the Hot Spots and Which One Have Cooled

Magazine article Mortgage Banking

Hot or Not? Sometimes Analysts Disagree on Which Housing Markets Are the Hot Spots and Which One Have Cooled

Article excerpt

HOT or NOT? Sometimes analysts will disagree on which housing markets are the hot spots and which ones have cooled.

Cleveland is a hot housing market, according to one consultant, but big developers show no interest. It has a declining population, but an increase in the number of households.

Wichita is also hot, according to the same consultant, but nothing has happened except for a decline in housing starts and the lack of a surplus.

But an industry publication examining the same two markets found that housing starts in Cleveland declined 6 percent in 1988 from 1987, and that population growth is near nil. Even though building permits for residential units rose by about 3 percent last year, Cleveland was not among this publication's hot 20 markets, and Wichita was not even charted.

Why such a different perception of the same two markets?

The consultant, Kenneth Danter of Kenneth Danter & Company, Columbus, Ohio, analyzes markets to the smallest detail, including income, wealth, housing deficits and surpluses, population growth and household formation and mobility.

"There are good opportunities in the worst markets, and you can stub your toe in the best markets," Danter said.

The publication, U.S. Housing Markets (produced by Lomas Mortgage USA) bases its conclusions on per capita permits and does not include absorption. "The older cities are going to run quite low on our index," said Brian Bragg, editor of the publication. "By no stretch of the imagination could Cleveland be considered a growth market."

The publication said last year that the housing industry's national recession has broadened to include all areas of the country. Bragg said the assessment still holds in early 1990, with the exception of the oil patch states, "which had nowhere to go but up."

Its 10 hottest markets are Las Vegas, Ft. Myers-Cape Coral, West Palm Beach, Orlando, Riverside-San Bernadino, Daytona Beach, the Florida Space Coast, Seattle, Sacramento and Atlanta.

Danter's 10 hot markets are Boston, Chicago, Cleveland, Los Angeles-Long Beach, Newark, New York, Philadelphia, San Francisco, San Jose and Washington, D.C.

The disparities in these lists show the risky decisions that will face lenders and developers in the 1990s.

"Most developers go wherever the most building permits are, and that makes it a hot market for them," Danter said. Investors and lenders, however, need to compare housing starts with existing housing and other factors to determine whether or not new construction will outstrip the capacity of the market.

On the other hand, developers with deep pockets are buying large tracts of land in depressed markets at discount prices, said Wayne D. Ferguson, president of Lomas Realty USA. They hope to be positioned to profit from an eventual upturn.

Danter agreed that new construction opportunities still exist by filling a geographic, price or conceptual void. "Lenders are becoming a little more sophisticated in knowing this," he said.

A demographic study released in November 1989, by the National Association of Realtors found that new opportunities will be found in the strong housing demand by various groups such as trade-up couples, retiring baby boomers, non-traditional households and immigrants.

Danter's rationale

In an interview, Danter said his firm does analyses from the perspective of the investor, not the developer. As such, he preaches that markets are changing.

"There are a dozen different profiles of buyers and renters," he said, "and it is becoming more and more important to target each one. Not many of our developer clients have a handle on this."

Once these profiles are understood, Danter believes that developers will realize that people do not move because they need a new house, but because they want one.

Along with targeting a market, a developer should be following local housing demand. …

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