Wednesday, January 16, 2008

Chance of Lower prices in 2010

PMI Residential Real Estate Trends 2006 download pdf.

Red is 90% probability. That big blob in the lower left represents about a quarter of all US residential asset value.

As a result of deteriorating market conditions and the enhancements to the risk index model, the risk of home price declines increased in all of the Top 50 MSAs during the third quarter. California’s MSAs accounted for 7 of the 15 MSAs in the highest risk categories.
There is also a growing distinction in California between the performance of house prices in the northern parts of the state (dominated by the San Francisco Bay area), southern parts of the state (dominated by Los Angeles and San Diego), and the Central Valley (Bakersfield, Fresno, Modesto, etc). Housing markets in the Central Valley and Southern California MSAs are much weaker than those in the Northern California MSAs, where employment continues to be strong. The MSAs in Florida
account for 5 of the 15 highest ranked MSAs in the largest 50. Rounding out the group are Las Vegas, Phoenix, and Providence, which all experienced significant increases in their risk scores.

----If this perspective becomes common knowledge we can expect a huge number of homemoaners to review their housing strategy. I'll be plain. MILLIONS of people are only in the house they are in now because they thought they could capture apperciation. They are going to look at this and their monthly payment and taxes and see their investment 90% chance of eing lower and they are going to get out of that particular house. Or at least try. Grab some butt and hold on.


Northern Renter said...

First of all, is the NorCal economy really that much stronger than in SoCal, and is it likely to remain that way? I assume that the difference is due to the high tech around Silicon Valley... but does this skew the NorCal data or does the employment in this area cause higher housing prices throughout NorCal due to greater employment possibilities throughout the area?

Second of all, Murstr!


Northern Renter said...

Ummm.... make that murst, not murstr!


Rob Dawg said...

I think any difference is an artifact of the model they are using. There's just no way NorCal prices 2010 will be back up to 2006 levels.

I am beginning to flesh out my longer term projections for the State. One possible consequence is political. The old saying goes that a liberal is a conservative that hasn't been mugged. There's a mugging coming.

Northern Renter said...

Rob, pardon my temerity in commenting on the Californian political scene as I haven't lived there for decades. But how much of the current problems will be laid at the feet of liberals rather than conservatives? While the Sacramento legislature is liberal, the federal government has been run by conservatives for quite some time and there are serious problems with the national economy and the federal debt. For this reason, I don't see how the state's economic problems will lead to a political migration to the right. It could be argued that the national economic problems are different from those of California, but that argument contains a hint of "It's different here..." and I doubt that any reader of this blog accepts that reasoning.


Rob Dawg said...

Rob, pardon my temerity in commenting on the Californian political scene as I haven't lived there for decades. But...

It's a freakin' BLOG! Comment all you want, use bad language, shoot from the hip.

Okay, now as to your comments. I honestly believe that most of California's governance problems are due to single party rule. That single party happens to be Democrat and also happens to be extremely liberal in that spectrum. If we had single party Republican and/or conservative we'd still have nasty governance issues just different ones. The rest of the problems are likely due to sheer size. When 20 nillion citizens live more than a days drive away from the State house there's no way to govern effectively.

I do disagree about the Feds. Bush may be a Republican but he is not conservative in any form. Remember also the the US has gotten so liberal in the last two generations that JFK would be deemed too conservative to garner a Republican nomination.

One of my pet descriptions of CA vs the rest of the nation isn't so much difference as scale. For our purposes that means we will fail far more spectacularly.

serinitis said...

I think it is a combination of size combined with lack of distinction between who is responsible for what. With the state making up for local governments loss of Prop 13 property tax. The state has its fingers in everything. Which makes no one responsible for anything.

I also think getting parties out of the primaries could help the state. In Republican districts you would end up with a conservative Republican vs a moderate Republican in the general election. The same would occur for Democrat districts.

serinitis said...

And Reagan would be to liberal to be Republican Candidate

Anonymous said...

That big blob in the lower left represents about a quarter of all US residential asset value.

That's because y'alls stuff is all good and ours is no good. Bwahaha!!

Winston said...

Rob's right about one-party rule having been a disaster for California. It has not only led to the state adopting policies driven more by ideology than results (don't get me started on California's excessive spending on public transit or health care), it has also led to an opposition that only exists to fight tax increases and is unable to propose solutions or participate in governing.

On another, only slightly related note, at least California's transit systems are better designed than this one:

Property Flopper said...

It would be interesting to see that map combined with population density. Sure, Wyoming only has one area facing decline, but that's because it's the only area that HAS property values.

The blurb about the SF Bay Area is accurate - the economy here is doing fairly well. There is a lot of software here, but also bio-tech, banking/finance, etc. Some sectors age getting hit but others are strong. Over all impact isn't too bad.

The map shows SF itself in better shape than the surrounding counties - this is true but only part of the picture. SF housing is fairly strong right now and the further you get from the City, the more the prices are dropping.

With a finer granularity, you'd see the City itself in green, with close-in suburbs in yellow... fading out to the Pittsburg / Antioch and/or Fairfield / Vallejo areas in glowing red. When housing went sky high, the outlying areas jumped far more than they should have (rivaling the close-in suburbs). They now have a long way to fall.

Bob said...

Was that report written by Mr. Obvious? Talk about pusillanimous (sp.?):

"...we think it is unlikely that house prices will turn around in 2008."

"... the number of MSAs with
relatively low home price risk continues to outnumber those with
relatively high risk—but that could change if the economy and financial markets worsen further."

and my favorite: "All real estate is local."

The last is truly misleading. The whole report is based on a back-tested model. They overlook the markets that would have had no price appreciation if not for bubble market spillover; e.g., Milwaukee, where prices were propped up by Chicago equity tappers who found it was cheaper to buy a condo on the Milwaukee River than to rent a dock on Lake Michigan.

chickelit said...

Ouch- I took a beating today in Ag-related and coal stocks. Basically all those Red-state export commodities let me down.

Rob Dawg said...

No comments about the grab a butt picture? You are all getting too stuffy. You want "swollen tips" to mean only interest protected treasury offerings below par? Fine then keep on failing to appreciate the content I provide.

Anonymous said...

The dawg is getting cheeky. Ooh, I'm so clever, appreciate my humor, I'm deep. You folks just don't understand the complexity of dawg's wit. We're not worthy dawg, carry on.

Sac RE Agent said...

Rob, I really only cared about the pix. It was the only positive view in all of the posts.

BJ said...

@Rob Dawg

No comments about the grab a butt picture? You are all getting too stuffy. You want "swollen tips" to mean only interest protected treasury offerings below par?

I prefer puffy nips to swollen tips..

Ok.. there I said it.. now I sound more like Akubi.. time to get my coat and a beer!

Wait a minute: interest protected treasury offerings below par? If I am not mistaken, that would only occur if the market views the future as having higher interest rates than the rate on the treasury offerings.

Lou Minatti said...

Cool. I live in one of those turquoise counties. HAHA!

Hey, wait a minute. What's the deal with those two foreclosed houses on my street? I thought this was a limited risk turquoise county?

Rob, I think I'll steal this graphic for a post.

Akubi said...

Thoughts on Hillary's housing money shot...?

Lou Minatti said...


Here's a photo for you to use in a future post.

w said...

akubi, How do we get leaders who are not fools? GWB and Co want to deregulate everything turning Wall St into the wild west, while brilliant socialists like Hillary want to impose their will on the business world with grandiose schemes that will make people hoard their money and not invest it. I hope there is someone reasonable who has a voice in whatever new administration we get.

Akubi said...

Whatever it is I'm against it.

Ogg the Caveman said...

@ Akubi: I work with that guy! I also think I see one of the Muppets among the cap-and-gown set.