Wednesday, August 10, 2005

Many Markets See Price Drops

PMI Mortgage Insurance Co. recently released the findings of their summer risk index, which determined price declines have escalated in 36 of the 50 largest housing markets in the US. The question only time can answer, however, is if this is the beginning of a devastating bubble pop in those regions. Will prices fall by 10s of thousands, if not hundreds of thousands of dollars? Or, is this just a signal of a soft landing in which prices are dipping slightly as those markets cool?

This from PMI:
Joining Boston, MA and Long Island (Nassau-Suffolk), NY, four California markets -- San Diego, San Jose, Santa Ana, and Oakland -- crossed the 50 percent mark, raising to six the number of regions with a greater-than-50 percent chance of experiencing price declines. Nationwide, there exists a 21.3 percent probability of an overall house price decline, as measured within the next two years and across the 50 largest housing markets, up marginally from 20.2 percent last quarter.

Eight of the markets in the top 20 are in California. The only other state that comes close is Massachusetts with three.

Marco Van Akkeren, an economist with PMI Mortgage Insurance Co., said in a press release that the record pace of home price appreciation has not been accompanied by increases in income. Rent is also not keeping track with housing prices, a factor that many analysts say makes it smarter to rent than to buy. Van Akkeren said these and other factors are "causing the current home price environment to diverge from long-term economic fundamentals, which cannot be sustained indefinitely."

Here's a list of the top 20 riskiest markets followed by their risk index, as determined by the PMI study. More info is available here.
PMI US Market Risk Index by MSA
California regions are in bold

1. Boston-Quincy, MA — 553
2. Nassau-Suffolk, NY — 540
3. San Diego-Carlsbad-San Marcos, CA — 528
4. San Jose-Sunnyvale-Santa Clara, CA — 513
5. Santa Ana-Anaheim-Irvine, CA — 512
6. Oakland-Fremont-Hayward, CA — 509
7. Cambridge-Newton-Framingham, MA — 469
8. San Francisco-San Mateo-Redwood, CA — 459
9. Providence-New Bedford-Fall River, RI-MA — 432
10. Riverside-San Bernardino-Ontario, CA — 422
11. Los Angeles-Long Beach-Glendale, CA — 421
12. Sacramento-Arden-Arcade-Roseville, CA — 419
13. Edison, NJ — 364
14. New York-Wayne-White Plains, NY-NJ — 326
15. Detroit-Livonia, Dearborn MI — 295
16. Newark-Union, NJ-PA — 251
17. Minneapolis-St Paul-Bloomington, MN-WI — 249
18. Fort Lauderdale-Pompano Beach- Deerfield Beach, FL — 219
Average — 213
19. Washington-Arlington-Alexandria, DC-MD-VA-WV — 209
20 Denver-Aurora, CO — 169