According to the latest PMI Market Risk Index, the San Francisco-San Mateo-Redwood City MSAD ended 2009 with a 82.8% likelihood of house price declines over the next two years, down from a 91.7% likelihood at the end of 2008. For context, the risk of decline read 30.2% at the end of 2007 and 39.5% at the beginning of 2005.
The likelihood of decline for a few other nearby areas: Sacramento-Arden-Arcade-Roseville (98.9%), Oakland-Fremont-Hayward (95.0%), San Jose-Sunnyvale-Santa Clara (90.7%).
The risk remains at 99.9% for the Miami-Miami Beach-Kendall MSAD while the New York-White Plains-Wayne MSAD weighs in at 93.6% (up from 7% at the end of 2007).
Keep in mind the PMI Market Risk Index is tied to the OFHEO house price index which excludes jumbo loans and the large portion of subprime and Alt-A loans that Fannie Mae and Freddie Mac don’t participate in.
∙ PMI Economic And Real Estate Trends: 2nd Quarter 2010 [PMI]
∙ PMI’s Market Risk Index And Real Estate Trends Report: Spring 2008 [SocketSite]
· Economic And Real Estate Trends: Spring 2005 [SocketSite]
Damn! The legend is right on top of Aspen, Colorado.
From the link: on the map it doesn’t look like Aspen is covered, but if it is, it looks to be in the yellow “30-50%” range.
How funny is this…
The PMI Market Risk Index:
2005: 39.5%
2007: 30.2%
2010: 82.8%
So they told us in 2007, risk is less than 2005!! Now, they are play MMQB and say risk is high. I would say buy on the heels of this report, because their version of the “truth” is opposite of reality.
or, to summarize SFRE’s post more succinctly: it looks like the PMI index might be a contrarian indicator.
Oh please, you guys, it’s a regression analysis that is about 80% accurate. It isn’t 100%, nothing is. They are the first to admit it.
But 80% is hardly a contrarian indicator.
80% is to 100% as [almost] 30% is to 0%
The fact that risk actually decreased by 1/4 from 2005 to 2007 as things actually got much, much worse, says a lot about the index.
I’m not saying things aren’t risky, I’m just saying there methodology didn’t work during a time where most (including you tipster) though that the housing market was hyper-inflated. If a regression missed that, its probably not a good indicator of anything.
Wow, tipster… lol. You know what the weird thing about you is? You’re not an idiot. But you are so, so, so rigid in being a housing bear that you might as well be an idiot.
There past performance isn’t just off, it isn’t just “not 100%” – it’s a trainwreck. It’s as if Robert Kiyosaki put it together for them.
LOL at you defending this because it works with your current view.
Any methodology that could predict stock declines with even a 60% success rate would be an amazing breakthrough.
The fact that they get it right 80% of the time is nothing short of fantastic.
@tipster: They became MORE bullish at the height of the worse hyper-inflated housing market in history. In terms of useless metrics this ranks up there.
Wow, what a scary red map. My house is 100% at risk. Should I freak out now?
Their 2005-2007 miss kills their credibility.
That’s unfortunate because we’re in great need of some statistical evidence of an upcoming trend.
Good I still have my usual Rent vs. Own rationale.
Take the gross rent.
Deduct 30% for maintenance and/or HOAs
Deduct prop taxes
Deduct taxes on rent
If you’re left with anything that comes within 20% to an interest payment on 60% of the property price, that’s a BUY signal. Anything else means you’re basically subsidizing renters.
Based on that, SF is still 2X too expensive for the rental business. I am not holding my breath though. I know the forces at play.
OMG. The sky is falling.
I better quickly sell the my house in Noe Valley that I’ve owned for 26 years now, and get the hell out.
It’s almost over. What a bunch of bs
I agree, NOE is the probably one of the riskiest neighborhoods these days. I would avoid it for two years.
I literally ejaculate when all the comments get “inside baseball.” Its what I love about this site. That said, these kinds of averages are useless because the devil (or in this case, devaluation) is in the details. These numbers are affected in our region by the leverage exerted on prices, which in our case is not leverage culled from thin air. Its leverage created by a deep desire to live here splendidly.
Its an aspirational effect — but effected by people who aim high, buy big, fall back,and come back again.
That’s why if you look at home prices here, the only way you really can lose long term is by failing to keep up with your payments. Over time, if you keep up, your property values will keep up, too.
I’m not saying that is good or bad, its just a fact.
in our region by the leverage exerted on prices, which in our case is not leverage culled from thin air. Its leverage created by a deep desire to live here splendidly.
So it’s pure coincidence that that “deep desire” rose above historical norms as lending standards were loosened?
I literally ejaculate when all the comments get “inside baseball.”
ewwwwwwwwwwwwwwwwwwww…..
prices may very well go down a bit further, or may go up a bit more, but they aren’t moving very far from where they’re at for a while.
Much of the future will depend on what happens as the Fed balance sheet begins to shrink; and what happens when the sovereign debt defaults begin. We’ll be in an entirely new economic environment.
i see the gulf coast looks good per this chart – slick!
Dig into the numbers a little more. The same table that shows an 82.8% probability of decline for San Francisco also shows an Affordability Index score of 126.4. “An Affordability Index score greater than 100 indicates that houses have become MORE affordable” than they were in 1995.
Remembering that San Francisco house prices in 1995 were close to the cyclical bottom (almost exactly 50% of today’s level without adjusting for inflation), claiming that house prices are more affordable now is bizarre. I can only assume it’s because of today’s low interest rates. But I’d rather pay 1995’s prices and interest rates than today’s.
An affordable home is a CHEAP home. Financing gimmicks to get people in more debt are fattening the salesmen and the bankers, not the buyers!
Buying an expensive home is a ticket for the poorhouse. You’ll never pay it off and you’re bleeding yourself dry just to stay in. Your only chance is a bigger fool.
If a 2% increase in interest rates will kick you out of “your” house, then:
1 – This was not your house in the first place.
2 – You could never really afford it despite what the salesman told you. They want you to pay 50+% of your salary on a 30-Y debt service but they will want their commission right away! They don’t care what will happen to you. Always triple-check everything they say.
This chart can’t be correct… How can they confidently state that there’s a 98.9% chance Sacramento will decline in value — really, only 1.1% chance it will go up, even at these prices?
I agree it’s more likely to go down, but given the sharp decline, there has to be at least a 5% chance of rebound.
Is thsi index reallt that relevant for SF?
The fact that it excludes jumbo loans.
and includes other areas (what the hell is a MSAD anyway?)
“Remembering that San Francisco house prices in 1995 were close to the cyclical bottom (almost exactly 50% of today’s level without adjusting for inflation), claiming that house prices are more affordable now is bizarre. I can only assume it’s because of today’s low interest rates. But I’d rather pay 1995’s prices and interest rates than today’s.”
Yeah, I agree with your statement re: 1995 prices and interest rates.
Most of the affordability indices are sort of bunk anyway. My favorite was CAR’s “first-time buyer” index which assumes 10% down, 1/1 ARM, and that PITI can be 40% of gross income. This is the index they were using when making the ridiculous affordability claims over the last few years. Even their “traditional” index is a little off — they calculate based on averaging national fixed and adjustable loans (instead of just 30-year fixed in California) and assume PITI is 30% of gross income instead of 28%.
2008 Census data indicate that 40% of San Francisco mortgage holders pay 35%+ of their gross income for PITI. In 2002, 35% did. In decidedly pre-bubble 1999, 60% did.
Doesn’t look like an assumption of 30% of income for PITI is so unreasonable. It doesn’t fit the nice 28% guidelines, but has it ever around here?
That 60% number didn’t sound right, even if things were a little bubbly in this year in 1999-2001 due to tech money. I double checked that 1999 number, and it’s actually 23% as compared to 28% of renters. The respective numbers for 2008 (1-year results) are 38.1% and 33.3%.
http://factfinder.census.gov/servlet/QTTable?_bm=y&-qr_name=DEC_2000_SF3_U_DP4&-ds_name=DEC_2000_SF3_U&-_lang=en&-_sse=on&-geo_id=16000US0667000
In any case, the fact that people are doing it doesn’t tell us whether this practice is smart financial practice, good lending practice, sustainable, reasonable, etc. or whether it has sufficiently predictable default rates like traditional prime lending. Furthermore, it tells you very little about the kind of loan as well.
If anything, the recent boom and the recent HAMP statistics should tell you that people weren’t afraid to pay almost 45% of their gross income for housing and 77.5% of their gross income for all debt, and that banks were letting ridiculous things happen (e.g. the commonly told $14K income fruit-picker who bought at $720K house). That doesn’t mean it’s good or sustainable.
http://www.financialstability.gov/docs/Mar%20MHA%20Public%20041410%20TO%20CLEAR.PDF
Thanks for setting me straight on the 2000 data (60% sounded too high to me too), it appears I misinterpreted the figure! Apologies. I used the 3-year aggregate for the 2002 and 2008 data, the 1-year data looks close enough.
Keep in mind that these census data survey all mortgage-holders, including ones that bought 29 years ago who have seen substantial income growth since acquiring their debt. It would be interesting to break this down to examine the ratios for recent home buyers ( less than 3 years). I’ll bet that 50%+ of recent buyers pay more than 35% of their gross income on PITI.
I agree that in general, the 28% rule is agood one, but it begins to break down as incomes rise. It’s pretty easy to keep food, transportation, clothing, etc. costs down as your income increases.
Many people in SF choose not to proportionally expand their non-housing expenses in order to maximize their housing purchasing power. Who needs to spend 15-19% (typical American budget) of their income on transportation when you can ride the muni to work. Seriously- 15% of 250K is $38K per year. You can lease two 6-series BMWs and pay for 2000 gallons of 4-buck gas for that. I know a whole bunch of people around here making >250K, and none of them are rocking cars like that. More likely they buy a Lexus SUV or a TL, and spend around $20k per year for their total transportation. That liberates $18K that can go into housing costs. That’s 7.2% of income. Suddenly, it’s financially reasonable to spend 35% instead of 28%. These kind of decisions propagate across food, clothing, entertainment, etc., the net effect being that it is not unreasonable to spend much much more than the prescribed 28% on housing costs.