Count on the folks at Realtor.com to look on the bright side. PMI, the mortgage insurance folks, released a report on July 1 entitled, "PMI Summer 2008 Risk Index Indicates Risk Intensifying in Areas With Previous Rapid Home Price Growth". Rather than focusing on that increased risk however, Realtor.com decided to focus on the bottom of the list and title their article, "14 Markets With Nowhere to Go but Up ". They state:
PMI identifies these areas as having a less than 1 percent risk of home prices declining further:
Milwaukee-Waukesha-West Allis, Wis.
Cleveland-Elyria-Mentor, Ohio
Austin-Round Rock, Texas
Denver-Aurora, Colo.
Charlotte-Gastonia-Concord, N.C.-S.C.
Kansas City,Mo.-Kan.
Columbus, Ohio
Cincinnati-Middletown, Ohio-Ky.-Ind.
Indianapolis-Carmel, Ind.
San Antonio, Texas
Houston-Sugar Land-Baytown, Texas
Pittsburgh, Pa.
Dallas-Plano-Irving, Texas
Fort Worth-Arlington, Texas
The logic behind the list?
The highest risk is in areas where home price growth was the greatest during the housing boom. The lowest risk of prices declining further is in areas where affordability has increased.
I disagree. The highest risk for price declines is not a previous run-up in prices, but current supply and demand. Detroit has seen significant declines in their housing market in recent years, not because of previous record increases, but because supply has increased due to deteriorating economic conditions. Other communities that did not have a price bubble are hurting as well.
Tight lending, overbuilding, and a declining local economy can all disrupt the balance of supply and demand in a community. Anyone who bets strictly on previous price history could end up making a bad bet.
The index is a probability of a decline over the next TWO years. It never says anything about properties increasing. It is also based on OFHEO data which is under-reporting the decline, and not Case-Shiller data. It is interesting to note that the premiums one pays on PMI is based more closely to the CS index than the OFHEO data.
I agree with you Twist, the midwest (rustbelt) is more vulnerable in my opinion than most of the other regions due to Detroit’s bad bet on SUVs and trucks.
BTW, sorry for the blackout, I am on vacation in Europe and had a hard time finding WIFI in Dublin. Here in Riga, Latvia things are better. Woe is me, woe is the dollar. Still were having a good time.
Metro-
I hope you’re enjoying the trip.
There never is any rhyme or reason to wifi, is there? I was in a large hotel in Vancouver, B.C. that advertised wifi, but I never could get it to work. The next day I was on a beach in Kino Bay, Mexico, and the wifi worked fine- on the beach.
Wow, the ArizonaDoom articles are really starting to pile up on the ole sidebar:
“Foreclosure fighter hits Phoenix”
“Arizonans brace for summer mortgage resets”
“1/3 of Arizona homeowners “walking away” are investors”
“Ariz. cities struggle to make road repairs”
Too bad that I do not live in bulletproof Waukesha, Wiconsin.
BTW, the Dallas-Fort Worth area is included in this list. Everything that I have read leads me to believe that house prices in much of that area will decline significantly. Nevertheless, fictional Arlen, Texas should be fine, I tell you what.
Anyone who bets
strictly on previous price historyon advice from Realtors could end up making a bad bet.I would like to add that places more likely to have falling values are in the suburbs and further out from populated areas, as gas prices continue to rise, for commutors.
I have seen more for sale signs lately, the further I travel into the country.
Russ-
L has been hard at work- we owe this weekend’s AZ links to him.
I believe that all the Texas markets are set for a decline. HBs moved in and built a lot of homes and threw a lot of extra inventory on the market. Lending tightened up in Texas just like everywhere else. Price gains moderated, buyer enthusiasm wained, and all of a sudden, there’s a supply-demand imbalance- no price bubble needed.
DocScience is also right. Higher gas prices mean that folks lose their enthusiasm for living out in the outer reaches of urban areas- then demand takes another hit.
It’s amazing, isn’t it that the realtors who told us, “All real estate is local” like to use a “macro” view like this when it suits them. If we look even closer at any market, you’ll see that demand for expensive homes is being hit even further. First the old “bigger home means bigger equity gains” thing is gone, and now financing has gotten tougher.
“Buy. Don’t Worry. Be Happy.” never makes sense.
Yeah, 15 of the 16 highest risk places were three states, AZ among them. So of course the end result in Phoenix should be fear and loathing. NAR is spinning a negative report, but they do have the right to try and showcase a little decent news. Afterall, PMI backs up loans with less than 20% equity at time of settlement… PMI is profitable when they don’t have to pay out on a loan that defaults. Supply and demand does play a role, but the freakish price escalations played the bigger role in a market re-setting itself. Market value is always determined by buyers, and buyers are reigning in freakish values. They are paying closer to asking price in places like Denver and Colorado Springs now on properties that are not freakishly priced. A great deal of the supply-inventory out there is made up of freakishly over-priced properties, and guess what? Freakishly over-priced properties sit. Homes priced similar to September 2005 to May 2006 values in strong, move-in condition… these usually sell in less than 60 days.
I live in Denver metro area and I can tell you that in Denver prices are not affordable unless of course you want a crappy house or live in a crappy neighborhood. Of course none of these houses are moving. My guess is that Denver metro will decline at least 5 percent over the next 2 years.
Realtor.com is owned by NAR. Just ignore their blah blah blah. The majority of these locations have nowhere to go but up because they’ve been nowhere but down forever and probably always will be. If you bought a house in Ind. for $90K and kept it for 100 years, your great grandkids could sell it for $90K. Pittsburg is still full of unemployment, drugs, $30K houses that are only worth $30K. Whoever put this list together intentionally picked several holes in the planet where people just got stuck and never got out. I would have to disagree with their “Denver-Aurora” pick. That area is still quite expensive. I can’t imagine how it wound up on this list. I would dispute anything coming from NAR and I’ve been a realtor for over 10 years. They have a lot of agents glued to their happy talk but a “few” of us get their spin and practically choke on the emails they send us, trying to encourage us to contact our Senators and push for reform, higher FHA, ….”this isn’t your father’s FHA”….yea, yea, yea. It’s a shame how they present themselves.