Housing Market Fall Classic

October 26, 2015

“Never let the fear of striking out get in your way” – Babe Ruth

October is here: the leaves are changing, jack-o-lanterns are carved, and builders are preparing to hit year-end sales goals. October, of course, is also home to one of America’s greatest sporting events, the World Series. We thought it would be fun to combine our passions for real estate and sports by analyzing the housing fundamentals of the Kansas City and New York markets to see which area has a better jump on stronger growth next year.

Let’s introduce our two competitors:

Play ball!

Innings Summary

  1. Job growth: New York +1 run. Employers in the New York metro have added 127,000 payroll jobs to the employment base compared to one year ago, a 1.9% YOY increase. Comparatively, payroll employment has grown 1.2% YOY in the Kansas City MSA.

  2. High-Income job growth: Kansas City +1 run. High-income sectors added 5,300 jobs in the Kansas City MSA compared to one year ago, a 1.9% YOY increase. High-income jobs in the New York metro increased by 0.8% YOY.

  3. Single-family permit growth: New York +1 run, Kansas City +1 run. Single-family permit activity in both markets are far below their respective historical averages. Current single-family permit activity in the Kansas City MSA is 39% below its historical average, and New York levels are 45% below their historical average.

  4. Multifamily permit growth: New York +1 run. Multifamily permit activity (for sale and rental) in the Kansas City MSA has grown modestly over the past year, increasing 1.4% YOY. On the other hand, multifamily permit activity (for sale and rental) in the New York metro has grown substantially over the year and is up 104.8% YOY. Some of New York’s surge was due to builders paying for permits to avoid a property tax abatement expiration, but New York’s multifamily growth still exceeded Kansas City’s.

  5. Employment growth-to-building permit growth (E/P) ratio: New York +1 run. Both markets are new home demand heavy (E/P ratio greater than 1.2). However, the New York metro has a higher E/P ratio, at 1.9, than the Kansas City MSA, at 1.5.

  6. Home price appreciation: Kansas City +1 run. Our Burns Home Value Index™ (BHVI) indicates that single-family home values in the Kansas City MSA are up 6.4% YOY. Comparatively, our BHVI indicates that home values in the New York metro are up 2.2% YOY. Our NY territory includes far more than Manhattan and Brooklyn, where prices have spiked.

  7. Affordability: Kansas City +1 run. Our Burns Affordability Index™ (BAI) indicates that ownership affordability is better than the historical norm in both markets. Our BAI for the Kansas City MSA currently stands at 0.9 (0 = all-time best and 10 = all-time worst); our BAI for the New York metro is at 2.4 (again, it is a different story in the Big Apple).

  8. Intrinsic values: Kansas City +1 run. Our Burns Intrinsic Home Value Index™ (BIHVI) measures how home values would trend if mortgage rates were always 6.0% and the housing cost / income ratio was always 22.5% for Kansas City and 53.0% for New York (which we believe to be the correct long-term assumptions to use for these markets). According to these assumptions, today’s home values in the Kansas City MSA would be 4% underpriced, while home values in the New York metro would be 1% overpriced.

  9. Economic diversity: New York +1 run. The New York metro has 8 industries with a location quotient greater than one, and the Kansas City MSA has 6 industries with a location quotient greater than one. A location quotient is the metro area’s share of total jobs in a given industry divided by the comparable share nationwide; values greater than one demonstrate a greater than national average share of jobs in that industry, indicating specialization. A metro area with a high number of specialized industries indicates strong economic diversity*.

Current score: Kansas City 5, New York 5

Looks like we are heading to extra innings. Just as a reminder for all our fans, we have 18 offices across the nation. Feel free to reach out to us if you would like to subscribe to our research or can benefit from a consulting study. We are ready to field your questions and help you make your next project a home run.

*Data and definition sourced from Brookings.

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