The latest report from the PMI Group has been released, and the news is increasingly bad for Seattle:
As noted on the graph, PMI did improve their model with this latest report, so while Seattle’s new Risk Index of 343 is not directly comparable to its previous index of 167, the news still doesn’t bode well for Seattle home prices.
Of course, the local press puts the most positive spin possible on the news. The headline takes the cake: Home prices likely to hold steady, study suggests
Will the typical home cost less in two years than it does today?That’s the question a new study attempts to answer for the nation’s 50 largest metropolitan areas.
Seattle has a 34.3 percent chance of lower prices in two years — the 25th-highest risk and just under the population-weighted average of 34.6 percent in the summer U.S. Market Risk Index that PMI Mortgage Insurance Co. released Tuesday.
“This bodes well for the market there, in addition to the fact that Seattle has relatively really good affordability … and a solid employment market,” said LaVaughn Henry, director of economic analysis for PMI.
…
The changes to the PMI index, which led the company to skip its spring report, give additional weight to recent price volatility.Seattle ranked 18th for price volatility, with a higher rank meaning more volatility.
From the perspective of many Seattle residents, home prices shot up quickly to very unaffordable levels. Affordability is down 4.9 percent from six months ago and 10.5 percent from a year ago, but Seattle’s affordability rank remained relatively steady, going from 23rd a year ago to 25th six months ago to 24th now, with a higher rank meaning homes are less affordable.
The likelihood of price declines in Seattle in the next two years, while low, is higher than it was six months and a year ago, although new changes in PMI’s model make comparisons less valid. The metro area’s chance of declines was 16.7 percent six months ago, putting it 32nd among the top 50 areas, and 10.9 percent a year ago, good for 33rd place.
But never mind all that. There’s never been a better time to buy. Get on the equity ladder now, any way you can.
(Aubrey Cohen, Seattle P-I, 06.19.2007)
(The PMI Group,Spring/Summer 2007 Report, 06.2007)
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17 responses so far ↓
1
deejayoh
// Jun 20, 2007 at 11:16 am
I looked at this report yesterday, because I was curious about what inputs they used in the model. Their key drivers seem to be unemployment and affordability. I have to say, while I don’t disagree with their conclusions - I kind of chuckled a their approach.
IMHO, trying to derive any insights into the short to medium term direction of housing prices from macroeconomic factors like this is an exercise in futility. Those factors probably drive the long term trend line for a market, but there seem to be wild oscillations around that trend line that, based on these factors, defy explanations. Read Tim’s posts Does Job Growth = Home Buying Demand and A question of Affordability and I think you’ll see why.
2
biliruben
// Jun 20, 2007 at 11:43 am
Agreed. I haven’t looked at their new approach, but I did look at their old model a few years ago, and was left mouthing the obvious: “past performance does not guarantee future results”.
Part of the problem is that the unemployment statistic, beyond it’s inherent fault in not taking proper account of labor force participation rate, is also highly dependent on a strong housing market. If we stop buying, selling, building and renovating houses, that’s a lot of people working a lot less than they did in a strong market. See: San Diego.
3
Kenneth
// Jun 20, 2007 at 11:53 am
A little off topic, but is there a way to see historical auctioned off homes in the WA area?
Thanks
4
Buceri
// Jun 20, 2007 at 11:59 am
“This bodes well for the market there, in addition to the fact that Seattle has relatively really good affordability…”
Every few months you come across the words “Seattle” and “good affordability”, and makes you wonder if these articles are written by some Brit sitting in London. Wow.
5
AndyMiami
// Jun 20, 2007 at 12:26 pm
From Bloomberg today:
“Rate Rise Pushes Housing, Economy to `Blood Bath’
http://www.bloomberg.com/apps/news?pid=20601109&sid=akV2sasSGUY8&refer=home
6
Grivetti
// Jun 20, 2007 at 1:32 pm
The likelihood of price declines in Seattle in the next two years, while low, is higher than it was six months and a year ago,
This makes no sense.. basically “we know what’s going to happen in the future, unless something happens that changes our prediciton”…
*yawn*, another reason to circle-file the PI RE section.
7
softwarengineer
// Jun 20, 2007 at 1:34 pm
INTEREST RATES LOOK FAR WORSE TODAY FOR SEATTLE’S HOUSING HOPES
Besides a bearish day for DOW (-140 pts); the reason given was a +1.2% daily surge in 10 Year Treasury Notes. Sounds dinky unless you multiply by 365 days in year. In 1999 the 30 year home mortgage fixed rates were about 6.75%; looks like were returning to 1999 and very soon too.
What does my crystal ball say about home mortgage interest rates for the future, especially impacts on Seattle’s subprime refinancing and risks?
How does HORRIFYING fit the description?
See the proof:
http://biz.yahoo.com/ap/070620/wall_street.html?.v=46
8
EconE
// Jun 20, 2007 at 1:36 pm
Tim…you are a master wordsmith…you should be a writer…seriously…and you should get paid for it.
9
deejayoh
// Jun 20, 2007 at 1:47 pm
the thing that kills me is that these guys are making a living selling this drivel as insight. I learn more from this blog than I do from what “experts” have to say
10
EconE
// Jun 20, 2007 at 1:52 pm
Not only do I learn a TON from you guys, I also get such entertainment out of your replies that I haven’t even had to watch any T.V. since I moved here. T.V. sucks anyways.
11
Alan
// Jun 20, 2007 at 3:09 pm
Thank you. I’m here all week. Try the fish.
12
Boston
// Jun 20, 2007 at 3:22 pm
I’d like all to remember that PMI indicated a 50% chance of declines in Boston, San Diego and other cities 2 years ago. We all know what happened there.
Why aren’t reporters looking into this? I know the answer - because it’s not pre-chewed and handed to them.
PMI = Worthless = Most reporters.
13
ReaderFest
// Jun 21, 2007 at 9:49 am
New to this blog; thanks for it. Considering relocating to Seattle to be closer to family that lives in Alaska (can’t quite bring myself to move out of the lower 48). This housing news is not encouraging…
14
uptown
// Jun 21, 2007 at 2:15 pm
What they always seem to forget is that not every homeowner bought during the bubble years, many have owned for much longer; and those homeowners will not be so price sensitive as the bubble newbies. They will sell, if they want to sell, and still have a large profit even during a downturn.
Case in point: a friend of the family just sold her house in Chicago, and from her point of view she made money over the 40 years she owned it. Even though she accepted an offer below her asking, and the house was already priced to sell in a slowing market.
15
the real B
// Jun 21, 2007 at 9:16 pm
over the long term, excluding temporary bubbles (ie, assuming that only some people are lucky enough to time the market), the return on real estate is 4%. Yeah, you have to pay to live somewhere, but “making money” isn’t necessarily the point - you can make a much nicer return with less maintenance cost elsewhere.
ReaderFest:
What’s not encouraging? Price deflation ahead of us, a great renter’s market currently, and plenty of entertaining desperate flippers and real-estate agents in the bread lines.
What’s not to love?
16
ncm
// Jun 22, 2007 at 10:38 am
Why is everybody bashing PMI? Becuase you don’t think the probability of decline is high enough? They know what they are doing - I’m sure that if you have a better way for them to predict losses, they will listen. That is their business, after all; and futhermore, PMI is the friend of a smart first-time homebuyer. If lenders had insisted on their customers’ use of mortgage insurance over the past 3 years, we wouldn’t be in this position.
17
mydquin
// Jun 23, 2007 at 9:24 pm
Please report the way affordability is calculated. If it is calculated using the median or mean income, it could be showing a decline when in fact the average income of the home-buying class has kept pace with home prices. This could happen as a result of increasing variance in incomes (e.g., professional incomes vs. non-professional incomes).
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