Erdmann Housing Tracker · Housing & Cities
TIER 4 Thu, 16 Apr 2026 14:00:56 +0000
Most of my technical analysis is derived from a fundamental observation: Where a vertical supply curve creates a shortage of adequate housing, it leads to asymmetrical rent and price appreciation. The most expensive homes are relatively unaffected, and the inflationary effect of the shortage is proportional to the socio-economic distance between any given home and the most expensive homes in the metropolitan area. That pattern defined the expensive coastal metropolises before 2008 and now shows up across most cities, to some extent. Where prices are elevated for other reasons, like cyclical fluctuations, prices tend to rise and fall proportionately across a market. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- --- # A Reality Check on Relative Home Prices | | Kevin Erdmann --- | Apr 16| | | ∙| | Preview ---|---|--- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- Most of my technical analysis is derived from a fundamental observation: Where a vertical supply curve creates a shortage of adequate housing, it leads to asymmetrical rent and price appreciation. The most expensive homes are relatively unaffected, and the inflationary effect of the shortage is proportional to the socio-economic distance between any given home and the most expensive homes in the metropolitan area. That pattern defined the expensive coastal metropolises before 2008 and now shows up across most cities, to some extent. Where prices are elevated for other reasons, like cyclical fluctuations, prices tend to rise and fall proportionately across a market. Separately, constrained credit has the opposite effect as a supply shortage on prices. It pushes low tier prices down, but it has little direct effect on rents. From those fundamental observations, I can differentiate between 3 different sources of price appreciation. I have approached this with 3 different frameworks. In my recent Mercatus paper, I wanted to be able to measure the whole market, including small cities and rural areas where there aren't enough ZIP codes to establish linearity. So, instead of deriving a coefficient for the scale of the difference between rich and poor price inflation, I treated price/income ratios of the richest 10% of ZIP codes in each market as the proxy for pure cyclical trends, and I just added up the total excess value in the rest of each metro area as my estimate for supply-triggered inflation. Figure 14, from that paper, compares my estimate of the price/income ratio, which is represented by the supply-triggered "extra value" (yellow) stacked on top of the cyclically associated "base value", to the Case-Shiller index over time. I didn't want to complicate that paper with assertions that readers might balk at without more background, so I didn't really address the lending issue quantitatively. The "extra value" is actually an understatement of the effect of limited supply because it reflects prices that are asymmetrically reduced by tight mortgage access. The yellow line is like a combination of the Credit and Supply components in the Erdmann Housing Tracker. | | ---|---|--- By the measure I used there, you could say that about half the elevated prices in 2005 were associated with mean reverting cyclical trends, and about half were from the secular increase in rents related to urban shortages - at that time, mostly contained in the expensive coastal metros (the Closed Access cities). Basically, Florida and Arizona were moving the "base" line up, and New York City and Los Angeles were moving the yellow "base+extra" line up. Since then, it's been all supply. (The 2022 bump up in the base price level I think was mostly related to noise from Covid-era income stimulus and inflation.) One other way I frame the observation about the effects of binding supply constraints is in my Metro Area Analysis packages, where I compare prices to incomes, and measure the effect of supply shortages on a uniform lot premium unique to each metro area, based on the depth of the shortage. Only the Closed Access cities had significant premiums before 2006, but now, many fast growing cities have premiums well into 6 figures. The other way is in the Erdmann Housing Tracker, where I estimate the deviation from neutral pricing for each component in each metro area across incomes. I figure, using the tracker components, I can do a reality check on home price trends through 2025. Here, I will use an estimate of (total residential real estate / total personal income). You might have noticed from Figure 14 from the paper that Case-Shiller outpaced my price measure. I think part of that is due to the shortage inflating older, existing home prices more than new home prices, so under shortage conditions, Case-Shiller, which tracks value benchmarked to existing homes, tends to outpace measures that compositionally change with the housing stock. And, the Closed Access cities are probably a larger portion of the Case-Shiller estimate than the broader data set I used in the paper. The Erdmann Housing Tracker covers the 30 largest metro areas, so this is probably a bit mismatched too, and we should expect the Tracker estimate to be a bit more inflated than the national price/income number because the closed access cities are a larger portion of the Erdmann Housing Tracker data. | | ---|---|--- Figure 1 Figure 2 shows the 3 Tracker components. Cyclical in gray, Credit in blue, and Supply in Red. 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