Developers looking for a supply-cycle indicator should take a peek at sales of newly developed buildings.

At the beginning of the supply cycle, developers typically find ready buyers eager to bid up prices in expectation of strong returns. As the cycle matures, prices gradually decelerate, even as sales of newly developed buildings continue to grow.

The transaction data are consistent with this pattern. For one, sales of newly developed apartment properties—those within two years of completion—more than tripled between 2012 and 2014 as construction intensified (see orange bars in chart below). During the same period, though, the average price per unit (black line below) remained relatively flat, after increasing by more than 30 percent from 2010 to 2012.


This price pattern differs by market type. In primary markets, the average price per unit (green line above) grew by more than 50 percent from 2009 to 2012, which was expected in a recovery period when investors wanted to quickly put their hands on still-scarce newly built properties. Once construction accelerated, and more developers were trying to cash in on their new buildings, prices in primary markets decelerated, by about 10 percent in 2013 and by a similar rate in 2014. In secondary markets, however, the pattern differed: While the jump in price per unit (red line above) between 2009 and 2012 was also substantial—more than 40 percent—virtually no decline occurred in 2013 and 2014. 

Looking at primary markets in more detail, the trend seems to apply equally to central business district (CBD) and suburban sales. Between 2011 and 2014, the price per unit of newly built CBD properties in primary markets was roughly 60 percent higher than the price per unit in new suburban properties. With higher average prices, CBD sales represented more than 40 percent of the total volume.

That said, prices have had similar fluctuations within primary CBD and suburban areas. The average CBD and suburban price per unit in primary markets declined about 19 percent and 18 percent, respectively, between 2012 and 2014.

The takeaway for developers: Aggregate sales are still growing as the supply wave climbs to its peak, but price per unit in primary markets is decelerating at a faster pace than in secondary markets.

Secondary-market prices are holding up because the supply of new buildings is typically more limited in these locations, but the price trend may also be driven by buyers looking for opportunities that are becoming scarce elsewhere.

But keep in mind: The above examples don’t control for property differences over time, including the possibility that the newest properties have a larger share of smaller units. But the changes, which are still largely driven by demand and supply, are helpful as an indicator for the speed at which the cycle is maturing, especially in locations where the supply wave has been more noticeable.