Now there's a pretty frightening title…
The PMI Mortgage Insurance Company recently released its Summer 2007 "US Market Risk Index Model" results, and it places Phoenix solidly in the #2 spot for metropolitan statistical areas (MSAs) most likely to see a decline in housing prices over the next two years. A 64.6% chance to be precise.
There is no mention of how much of a price decline may occur, but other than the most rabid bubblehead, no one wants to see any price decline in home value.
This report has been in my "to be read and digested" pile for the last week. I got a call this evening from Marilyn Lewis, a reporter for MSN Money who is working on an article related to the report. She was quite nice and cordial, and we had a good talk about things a seller can do in this market. Having spoken with her, I elevated the PMI Group report to the top of the pile. While not yet fully digested, I've read it and pondered it enough to proclaim it "interesting".
Being a self proclaimed "chartaholic", and a former semiconductor manufacturing engineering type, I always find statistical analysis and models interesting. It's a sickness with no known cure.
The "MRIM" combines several factors to come up with a weighted analysis of what MSAs are most like to suffer price declines over the next two years. Specific factors are:
The PMI U.S. Market Risk Index is based on the OFHEO House Price Index , labor market statistics from the Bureau of Labor Statistics, and the PMI Affordability Index, which uses local per capita household income, home price appreciation, and a blended mortgage rate to calculate the local share of mortgage payment to income relative to its baseline year of 1995. (source)
That Phoenix has and could continue to see falling home prices is not an earth shattering revelation. As I said in "GASP! Median Values are Down!" (Oct 2006) and even as far back as November 2005, there is/was no way our 54% appreciation rates of 2005/2006 were sustainable. The question of course becomes, will prices continue to drop, and how much?
The PMI Group says there is a 64% chance prices will drop in the Phoenix real estate market over the next two years. Whether that means a drop of $1 or a drop of 50%, who knows.
Someone may be thinking right now, "Well, then there is also a 36% chance prices will rise!" That's not really a valid assumption as prices can do one of three things — rise, fall, or stay flat. We don't know what part of that 36% covers the probability of rising prices and what covers the probability of flat prices — the "MRIM" simply doesn't encompass this side of price movement.
And of course, the Market Risk Index Model could be wrong. It's been around since 2000 — "pre boom" years. I'm trying to find their previous years analysis as I think it would be quite interesting to see how accurate the model has been in the past.
What does this mean for real estate consumers? Much depends on what your needs are. If you have to sell (say due to a job transfer, financial reasons, etc.) then you have to. You can't really worry about what the future may bring. Find an agent that knows how to market a home in the current conditions, get your home spotless and make necessary repairs and price it properly. It will sell. Despite the doom and gloom of the mainstream media and bubble bloggers, homes still sell, every single day.
If you don't have to sell, now may not be the best time to list your home. Yes, I just said that in "print". It may not be the best time to sell.
Is it a good time to buy? Maybe. Again as I wrote in "What the Heck is a Buyer's Market?" it depends on your situation . Interest rates are near historical lows, and there are (in the Phoenix market) 54,000 homes to chose from. That bodes well for buyers. If you plan to remain in your home for several years, you've got decades of history that supports overwhelming odds your home will appreciate over time. But if your intent is to buy and flip the home for a profit, in the current market I'd have to label you as insane. And that assessment holds true whether or not the "MRIM" is accurate in predicting the future. Now is not the time to flip.
The MRIM is an interesting model. There are sound assumptions behind it. No model can predict the future however. It is a data source and one of many factors you should consider if you are contemplating buying or selling real estate in the current market.
Others Opine: Realty Times, Housing Doom, I Team, Housing Bubble Blog, Ellis Team
Technorati Tags: PMI Group, US Market Risk Index Model, Phoenix real estate
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T Smith 06.28.07 at 8:16 am
I work for SellHomeHouse.com and we are seeing a huge number of motivated sellers currently on the market. The housing market is so slow right now that people are turning to alternative methods to sell their homes just to get our from under the mortgage.
John Hunter 06.28.07 at 6:49 pm
Seems to me the odds are higher (in my fairly uneducated opinion) but, as you say a decline is not that meaningful a measure. A decline of over 10% might be something significant to consider. A decline of 3% versus a gain of 1% is pretty meaningless.
John L. Wake - Realtor 06.28.07 at 8:46 pm
“I always find statistical analysis and models interesting. It’s a sickness with no known cure.”
Sing it brother!
Here’s my take on the PMI report. (I’m sorry, it’s a compulsion. The numbers are talking to me. I wish they would stop!)
http://www.arizonarealestateno.....st-market/
homeboy 06.30.07 at 1:10 am
It’s just ridiculous how much urban sprawl is happening.. not just in Phoenix, but all over the country. It’s fine with me that house prices are dropping, because maybe I’ll actually be able to afford one now :}