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October 19, 2005
Home price danger zones
PMI Group, one of the nation's largest insurers of home mortgages, says there are five areas of the country with a risk of price declines over 50%. All are in the Northeast or California. Boston continues to lead the list with a 55% chance of price declines. San Diego, with a 53.6% chance, has jumped over Long Island with 53.2%. Pittsburgh is last at 5.4%. PMI has also introduced a valuation index that shows where home prices are estimated to be overvalued. Los Angeles leads the list with an overvaluation of 33.7%. Next comes Sacramento, at 31.3%, and Riverside, Calif. with 30.7%.
"House prices are sticky, so moving to another phase in the real estate cycle can be a slow process," explains Mark Milner, chief risk officer with PMI Mortgage Insurance Co. "We believe that over the medium to long term, prices will move into better alignment with local economic factors, in particular income."
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? Home prices in Boston falling faster than anticipated? from Counter Intelligence: The Real Estate Cafe Weblog
A post yesterday on Business Week's real estate blog entitled Home price danger zones once again cited Boston as the nation's vulnerable housing market, according to PMI Group's quarterly survey of major housing markets. In the past, the good news [Read More]
Tracked on October 20, 2005 12:11 PM
Detroit appears to be a special case since the risk index is relatively high (328) and the valuation index is the lowest of all cities listed (-10.3%).
Does this mean houses in Detroit are undervalued by 10.3%?
Posted by: Jeff at October 20, 2005 08:51 AM
While you can say, as this paper does, the higher the price, the higher the risk, it really isn't that enlightening. Prices can be high because of speculation, or they can be high due to growth. It is much better to compare local growth rates, amount of recent construction, amount of speculative loans, and amount of speculators in the local market. Another of the studies, which escapes me, is much more accurate.
Posted by: Lord at October 20, 2005 04:40 PM
A big part of the appreciation we have seen over the past couple years is due to the variety of mortgage products offered to customers (IO, ARM's & other exotic products). If Interest rates continue to increase over the next couple years, and these borrowers begin to default on their loans, who do you see coming in and profiting from this scenario?
Posted by: JT at October 21, 2005 03:50 PM
Actually what this study identifies are the areas that have had the best returns. After the next downturn in 5-10 years, these will be the areas to buy.
Posted by: Lord at October 23, 2005 10:53 PM