September 21, 2009
MIT’s transaction based index is based on NCREIF data, which tracks the sale and resale of some 6,123 properties valued at some $250B. One of the data sets that MIT puts out is its Supply and Demand Index, which is based on methodology from a 2003 paper found here. Using the data and chart provided by MIT, and plotting the points where supply and demand cross, we can see that it is a pretty good indicator of when property investors should enter and exit the market.
Obviously local and regional economic forces and numbers will vary, but for core, primary markets which often track overall macroeconomic trends, the supply-demand index seems to do a pretty good job of timing the entry and exit points.
I’ve marked the past four points where the supply and demand index have crossed. From what we know locally in Silicon Valley and San Francisco, we can see that any investor who followed this would be in a pretty good position right now as it would have indicated an exit sometime during Q3-Q4 of 2007, right around the time when GDP peaked.
The other item to note here is where we currently are and how far apart the supply and demand index is, which is reflective of the “bid-ask” gap between buyers and sellers right now.
Again, the data is scientific, but my plot points are not.
- MIT Releases Q1 TBI Numbers; Index Drops 5.8%
- MIT Commercial Property Index Records Largest Quarterly Drop In Its History
- National Association of Home Builders/Wells Fargo Sentiment Index Reaches All-Time Low
- San Francisco Bay Area Consumer Price Index (CPI) Up 4.7% Year over Year
- MIT TBI Shows 4.4% Quarterly Jump