Housing Prices Stronger Than You Think

Toddi Gutner

I find it incredibly refreshing to read Michael Youngblood’s reports on housing prices in the U.S. Why? Because the managing director of asset-backed securities research at Friedman Billings Ramsey & Co. in Arlington, Va. isn’t as pessimistic as everyone else I interview.

Youngblood thinks residential real estate is a lot stronger than most people suspect. He bases his assessment on a new economic model he created that forecasts housing prices in 379 metropolitan areas (MSAs). I interviewed him back in early May when he first introduced his econometric model and he has recently re-estimated that model. The key points of his most recent report are:

• Housing prices will rise in each of the next four quarters, but by progressively slower rates year over year: 7.1% in 2Q 2006; 5.7% in 3Q 2006; 4.4% in 4Q 2006 and 3.5% in 1Q 2007.
• MSAs with fastest year-over-year gains in 1Q 2006 will continue to rise. Those cities include Phoenix, Az (34% expected rise in 1Q 2007) and Naples, Fla. (51% expected rise in 1Q 2007).
• California market will have continued rising house prices with a median year-over-year rate of 24.1% in 1Q 2007.
• Ten of the largest MSAs will continue to rises in housing prices: 17.5% in New York City; 26.7% in Los Angeles, Ca.; 4.9% in Chicago; 3.9% in Houston; and 4.8% in Atlanta, Ga.
• House prices will fall in increasingly numbers of MSAs: four in 2Q 2006; 10 in 3Q 2006; 28 in 4Q 2006 and 24 in 1Q 2007 where they should fall by a median of 1.3% year over year. Of those 24 MSAs, 17 are located in the rust belt, cotton belt and farm belt.
• Only five of the largest 100 MSAs (St Louis, Mo., Pittsburg, Columbia, SC, Little Rock, Charleston, SC) will see a fall in housing prices year over year in 1Q 2007.
• Only Honolulu, Ha. Which is experiencing a house price bubble, will see a fall in prices in 1Q 2007, whereas the other 73 MSAs with bubbles should rise by a median year-over-year rate of 19.6%.

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