ABRE Analytics studies correlation between unemployment rates and future real estate sales projections; projects statewide real estate sales growth of 13%
With the release of the metro unemployment data for January 2012, ABRE Analytics is pleased to present our combined projections and commentary for the Alabama real estate market. One note, the current projections are considerably more optimistic than the preliminary ones due to the much better than expected unemployment rates.
|Area||2011 Projection||2011 Actual||2011 Error||2012 Projection||Correlation% 2004-2011||% change from 2011|
Preliminary looks at the Mobile and Baldwin county areas showed poor results, probably mostly due to exogenous events like hurricanes and oil spills. The projected increase for Montgomery seems out of line. It is also noted that the performance of the projection for 2011 in Montgomery was quite poor. Possible reasons include the high dependence on government employment and the high uncertainty surrounding it in spite of the low, and declining unemployment rate.
ABRE Analytics present these projections as a “work in progress” and as a tool for assessing how well current sales are performing against some level of “informed” expectation. You should not rely on them, but nonetheless we hope you will find them useful.
It is always possible that catastrophic financial events or natural disasters will dramatically change people’s outlook for the future and therefore immediately impact the plans for home purchases. For the time being however we do not see anything that predicts nearly as well as unemployment. Unemployment rates have issues such as people dropping out of the workforce, but overall dropping rates are one of the best indicators of consumer expectations, and therefore predictors of home buying intent.
In the process of developing this methodology we also tested it in other geographies and found similar results. Further, we tried to find correlations to mortgage interest rates and found them to be not at all predictive of home buying activity.
Month to month break-out of the yearly projections are done by taking the sum of the 2004-2011 monthly volumes, for each market, and deriving the monthly spread of sales from those volumes.
The monthly estimated volumes do show more variation since we are dealing at finer levels of detail. The monthly tables are located here http://goo.gl/WFHrO, along with all the worksheets for deriving the forecasts.. The detailed spreadsheets also show the 1st two months projections vs. actuals for 2012, which look quite accurate, except for the previously mentioned Montgomery.
About ABRE Analytics: Strategic collaboration is one of the keys to accelerating the flow of insights in the 21st century. The Alabama Center for Real Estate (ACRE) and Tom Brander has been successfully collaborating since 2009 when Mr. Brander was appointed to the ACRE Leadership Council. Council members provide insight and counsel on current market trends, and enhance the sustainability of ACRE through vision, resourcefulness, and creativity. Without creativity and collaboration, two recent ACRE projects, the “Alabama Real Estate Confidence Index” and the “Alabama Residential Data Center” gadget for smartphones would still be on the drawing board. The flow of ideas that in turn lead to solutions to better serve the Alabama real estate industry and consumers is virtually an endless stream and ACRE and Tom Brander are forming ABRE (ACRE/Brander Real Estate) Analytics as a strategic collaborative umbrella that will foster future creative thinking while also providing hands-on experience for student/interns of ACRE.
This latest initiative explores methods to project future residential real estate sales. “Late last year, Tom shared his published preliminary projections that were based on estimates of the US Bureau of Labor Statistics January unemployment rates for a limited area in Alabama. The preliminary results looked quite good and initial test showed high accuracy for 2011 (when calculated blind from the 2011 January unemployment data) and ACRE desired to broaden the project across applicable statewide markets”, according to Grayson Glaze, executive director of ACRE.
About ACRE: ACRE, housed within the UA’s Culverhouse College of Commerce, collects, maintains and analyzes the state’s real estate statistics, and is a trusted resource for Alabama real estate research, education and outreach. The relationship between the Center and our industry stakeholders is one of the Center’s greatest strengths. Alabama companies and individuals partner with the Center bringing a wealth of resources and experiences, becoming, in effect, extensions of the Center, a network through which our outreach to the Alabama real estate industry is enhanced and enriched.To learn more, please visit www.acre.cba.ua.edu.
About Tom Brander: Tom provides Real Estate market reporting services which can be found at http://tombrander.com and Software services for Web, mobile and Data analysis, using Open Source Software, more information at http://oswco.com . He is a senior member of the ACRE Advisory council, and assists ACRE in its research programs.