Housing market: Riskiest regions

It’s a fact. Today’s housing market isn’t what it used to be. In most markets, you can no longer buy a home and bank on its value appreciating in the short-term.

But what does this mean for the average homeowner or home buyer? Well, first of all, national statistics can be misleading. In recognition of this, PMI Mortgage Insurance has come out with a new U.S. Market Risk Index that ranks 50 of the nation’s largest metropolitan areas in terms of how likely they are to have lower housing prices in two years time.

The PMI index is different from more traditional real estate market indices in that it takes into account price volatility as well as price movements. It therefore identifies areas that have experienced the sharpest boom in housing prices and the greatest decline in affordability -- as the ones most likely to experience a price “correction.”

For example, much of the central and southern U.S. - that has had a fairly low rate of appreciation and housing prices that have remained relatively affordable - is considered less likely to experience a significant price deceleration.

According to the index:

The riskiest markets (with an over 60 percent likelihood of decline) are:
Riverside-San Bernardino-Ontario, California (65.2%)
Phoenix-Mesa-Scottsdale, Arizona (64.6%)
Las Vegas-Paradise, Nevada (61.4%)
West Palm Beach-Boca Raton-Boynton Beach, Florida (60.7%)

The least risky markets (with a less than 10 percent likelihood of decline) are:
Cincinnati-Middletown, Ohio-Kentucky-Indiana (9.7%)
Columbus, Ohio (9.3%)
Indianapolis-Carmel, Indiana (8.4%)
Houston-Sugar Land-Baytown, Texas (7.9%)
Dallas-Plano-Irving, Texas (7.5%)
Fort Worth-Arlington, Texas (7.4%)
Pittsburgh, Pennsylvania (6.4%)

So what does this expected decline in the housing market mean to potential home buyers and sellers? Based on an analysis of its findings, PMI suggests the following:

1. Home ownership should be viewed as a long-term investment. While we may be currently experiencing a dip in the market, historically, houses owned for 10 years or longer usually appreciate in value.

2. The days of quick and easy home-flipping may be over. Buying a handyman’s special, fixing it up and selling it for a quick profit can work well when prices are escalating. It may not pay off so easily, however, in a declining market.

3. Be careful to choose a mortgage that you’ll be comfortable with for the long-term. If you choose an adjustable rate mortgage (ARM) and your monthly payment increases to a level you can’t afford, it may not be so easy to refinance and arrange a lower payment if your home has gone down in value.

4. If you already have an ARM and are concerned about the possibility that rising rates may cause your monthly payment to become unmanageable, talk to your lender as soon as possible. You may want to consider refinancing for the security of a fixed-rate loan. Or you may be able to work out a new payment plan for your existing loan.

5. Don’t think now’s a bad time to buy a home. Today’s declining prices may have made homeownership in your region more affordable than it’s been in recent years. And owning a home continues to be one of the more effective long-term strategies for building wealth.

Today’s changing home market should be viewed as part of a much larger economic cycle - just as your decision to buy a home should be viewed as part of your much larger, lifelong financial plan. Before you take action, be sure to take a good look at your financial picture and consider all of your options carefully.


Get loan offers customized for you today.