MARKET RISK INDEX PREDICTS FURTHER MOTION OF HOME PRICES
Since housing boom is coming to the end and most of American real-estate markets are cooling all the participants of the markets from homeowners to real-estate agents are concerned about further changes in home prices.
I suppose those who want to forecast movement of home prices to apply to the USA Market Risk Index offered by PMI Mortgage Insurance Co.
Mentioned index is based on data from the Office of Federal Housing Enterprise Oversight, the Bureau of Labor Statistics and the PMI affordability index. It is measured from one to 1,000 and is calculated for 50 of the country’s largest metropolitan areas.
If an area has index score 100 this means that the area has a 10% risk its home prices will decrease over the next two years. Higher index values mean a greater chance of home-price decrease in the future.
The medium Market Risk Index for the country’s largest metropolitan statistical areas was 288 in the first quarter of the year; it raised one point from the last quarter and 70 points from a year ago. While 25 metropolitan areas had a rise in risk, 20 had a decline within the quarter. The quarter’s risk index was not calculated for the New Orleans area due to the impact of Hurricane Katrina.
According to the chief officer of PMI Mortgage Insurance Co. Mark Milner “this quarter’s data signals that in many areas the expansion of the housing balloon has slowed substantially”.
The risk index measured higher than 500 for thirteen metropolitan areas. The highest scores had such areas as San Diego-Carlsbad-San Marcos, Calif. (599), Nassau-Suffolk, N.Y. (589), Boston-Quincy, Mass. (588), Santa Ana-Anaheim-Irvine, Calif. (588), Sacramento-Arden-Arcade-Roseville, Calif. (585), Riverside-San Bernardino-Ontario, Calif. (583), Oakland-Fremont-Hayward, Calif. (582). Such index scores indicate a 50% or higher risk of home-price reduction in the next two years.
Five areas had index scores from 400 to 500: New York-White Plains-Wayne, N.Y.-N.J. (498), Las Vegas-Paradise, Nev. (481), Newark-Union, N.J.-Penn. (459), Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (441), Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va. (431).
Four top metropolitan areas had index values from 300 to 400: Miami-Miami Beach-Kendall, Fla. (359), Minneapolis-St. Paul-Bloomington, Minn.-Wis. (355), Detroit-Livonia-Dearborn, Mich. (337), Baltimore-Towson, Md. (307); two areas – from 200 to 300: Tampa-St. Petersburg-Clearwater, Fla. (294), Virginia Beach-Norfolk-Newport News, Va.-N.C. (278).
For twelve areas index scores was from 100 to 200. Among them Warren-Troy-Farmington Hills, Mich. (184), Orlando-Kissimmee, Fla. (179), Phoenix-Mesa-Scottsdale, Ariz. (175), Atlanta-Sandy Springs-Marietta, Ga. (165), Denver-Aurora, Colo. (149) and others.
And thirteen metropolitan areas had a risk index less than 100. Among them Austin-Round Rock, Texas (93), Charlotte-Gastonia-Concord, N.C.-S.C. (87), Houston-Sugar Land-Baytown, Texas (83), Dallas-Plano-Irving, Texas (80), Nashville-Davidson-Murfreesboro, Tenn. (71). Pittsburgh had the smallest Market Risk Index, with a rating of 57.
After a small review of the Market Risk Index scores in the top 50 metropolitan areas, with the exception of New Orleans, I’d like to conclude that the most risky areas are situated along the coasts. Thus eight areas with the highest risk are located in California and five are in the Northeast.
And among the least risky states I want to mention Texas, Ohio and Indiana. So I think that if you want to save money while investing in realty it would be better to choose underlying areas for those purposes. Because the chance of home-prices decline within the next two years in that states is less then 10%.
But for full confidence I think it would be expedient to apply also to the S&P/Case Shiller Home Price Indexes, which were designed to measure the average change in U.S. home prices. The indexes based on 10 cities - Boston, Miami, New York, San Diego, San Francisco, Washington, D.C., Chicago, Denver, Las Vegas and Los Angeles - help homeowners to hedge against price fluctuations in their homes.