Monday, November 13, 2006

High & Low Risk Markets

Some California homeowners may see home prices decline over the next couple of years, according to PMI Mortgage Insurance Co., a Walnut Creek (CA)–based private mortgage insurer. PMI produces a quarterly U.S. Market Risk Index based on local economic conditions, income, and interest rates. The statistical model estimates the probability of falling home prices over the next two years.

Eight of the 10 riskiest home markets are in California, according to the analysis. Coincidentally, the eight California markets also experienced some of the highest appreciation rates between 2000 and 2005. They are:
1. San Diego-Carlsbad-San Marcos (CA), 60.3 percent
2. Sacramento-Arden-Arcade-Roseville (CA), 60.1 percent
3. Oakland-Fremont-Hayward (CA), 60 percent
4. Santa Ana-Anaheim-Irvine (CA), 59.9 percent
5. Nassau-Suffolk (NY), 59.8 percent
6. Riverside-San Bernardino-Ontario (CA), 59.6 percent
7. Boston-Quincy (MA), 59.6 percent
8. Providence-New Bedford-Fall River (RI/MA), 59 percent
9. Los Angeles-Long Beach-Glendale (CA), 59 percent
10. San Jose-Sunnyvale-Santa Clara (CA), 58.9 percent

The report picks markets in Texas and the Midwest as the 10 least at risk of price declines, with Pittsburgh as the least risky. These locals have had very low appreciation rates. The least risky markets are:

1. Houston-Sugar Land-Baytown (TX), 8.8 percent
2. Nashville-Davidson-Murfreesboro (TN), 8.6 percent
3. San Antonio (TX), 7.8 percent
4. Fort Worth-Arlington (TX) (MSAD), 7.6 percent
5. Columbus (OH), 7.4 percent
6. Cleveland-Elyria-Mentor (OH), 7.4 percent
7. Cincinnati-Middletown, (OH/KY), 7.2 percent
8. Memphis (TN/MS/AK), 6.8 percent
9. Indianapolis-Carmel (IN), 6.3 percent
10. Pittsburgh (PA), 6.1 percent

So here is the question. Assuming the market value of an average home in the high risk areas falls 20 percent by the end of 2007 and assuming the market value in the least riskiest remains the same where would an average homeowner realize the highest return on their investment between 2000 and 2007? In the high risk markets.


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