Is Orange County a "High Risk" Housing Market?
As reported in the OC Register, 11/19/10
The chance that Orange County home prices will decline in two years is dropping slightly — but this region is still a “high risk market,” according to a new real estate study by mortgage insurer PMI Group.
| Metro | Risk Loss | Price chg. |
|---|---|---|
| Fort Lauderdale | 99.9% | -3.6% |
| Miami | 99.9% | -3.9% |
| Orlando | 99.9% | -5.8% |
| Las Vegas | 99.8% | -7.8% |
| Tampa-St. Pete | 99.7% | -4.6% |
| Jacksonville | 99.6% | -5.1% |
| Inland Empire | 97.9% | +2.6% |
| O.C. | 97.8% | +2.0% |
| Phoenix | 97.5% | -5.8% |
| Los Angeles | 96.8% | +4.0% |
| Edison NJ | 89.4% | -0.9% |
| Baltimore | 88.8% | -1.5% |
| Austin | 84.9% | -0.4% |
| Sacramento | 80.0% | -2.9% |
| San Diego | 77.1% | +1.7% |
| Atlanta | 75.7% | -2.4% |
By PMI math, there’s a 97.8% chance that local home prices will be lower by the second quarter of 2012 — eighth-highest risk score of the Top 50 major markets tracked by PMI. That’s still a high risk” score but a modest improvement from this year’s first quarter when Orange County scored a 99.7% chance of falling prices in two years. (See chart at right is of PMI’s “high-risk” big markets; their risk score; and the market’s change in their respective CoreLogic home price index for year ended this second quarter.)
Various economic measures build PMI’s risk equation that predict the chance — not the size — of future losses.
In one part of the formula, PMI looks at the volatility of local housing prices. In the second quarter, PMI found a 19 percentage point upswing in Orange County home-price performance — from losing local value at a 17% annual rate a year ago to 2% annual appreciation this year. All told, Orange County had price volatility one-third higher than the PMI Top 50’s average. And PMI sees volatile markets as riskier.
PMI also looks at local housing affordability, measuring costs and incomes and mortgage rates. While Orange County’s affordability was measured at roughly 1995 levels, the current national affordability ran 35% higher.
Another variable is unemployment. PMI sees Orange County joblessness running 5.6 percentage points above the five-year local average. Nationally, unemployment runs 4.9 percent points above average.
Nationally, PMI found that risk scores fell in 64% of the 50 most-populous metro areas in the second quarter of 2010. Of this big-city group, 56 percent have a greater than 50 percent chance of lower house prices by second quarter 2012 vs. 70 percent in the first quarter.
Among the broader 384 metro areas studied, PMI risk scores fell in 63 percent of the markets as the average risk score dropped for the fourth consecutive quarter.
PMI noted that it expects recent price gains seen in CoreLogic’s national housing index to be erased by the end of this year — with “a bit more” of decline in 2011’s first half. However, “it is likely that the most significant house price declines from the housing bust are behind us.”
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