Geographic Diversification and Economic Fundamentals in Apartment Markets: A Demand Perspective

Executive Summary. This study explores the diversification opportunities across the U.S metropolitan apartment markets and attempts to discover the crucial economic factors for determining the relationship of asset performances among different MSAs. Historical data of local economy and apartment markets are collected for forty U. S. Metropolitan Statistical Areas (MSAs). Cluster analysis is used to develop homogeneous groupings of the metropolitan apartment markets. A bootstrap simulation technique is combined with the cluster analysis to improve the stability of the output. The optimal MSA cluster grouping is then linked to a set of economic variables by using a multiple discriminant analysis (MDA) technique. The results of cluster analysis provide strong evidence for the existence of homogeneous groups in the metropolitan apartment markets, and the discriminant model identified six demand-side factors that are significant in determining the group membership of the individual MSAs.