Housing Bubble
Housing Market Trends Index falls to 6.70 in the fourth quarter
Mortgage Guaranty Insurance Corporation (MGIC) today reported that its national Market Trends Index (MTI) was 6.70 in the fourth quarter of 2002, down from 6.90 in the third quarter and 6.92 a year earlier, reflecting the sluggish economic conditions nationally. Despite the decline, the nation's single-family housing markets remained stable; however, more areas of the country are showing some softness and reduced appreciation rates.
For the year, the MTI averaged 6.82, the lowest annual average since a 6.71 reading in 1995. The quarterly MTI has been steadily trending lower since reaching an all-time high of 7.75 in the fourth quarter of 1999. The MTI's all-time low was 6.10 in the fourth quarter of 1992, when the MTI was first computed.
"The decline in the index from its peak follows a 22-quarter period in which the national MTI stayed above '7', reflecting one of the strongest runs that both the U.S. economy and the nation's housing markets have ever seen," notes Neil Siegel, MGIC's Senior Market Analyst. "Put in that perspective, the decline to the current level is really not surprising."
MGIC's MTI is based on the Market Trend Analysis Report produced quarterly by MGIC's Credit Policy Department using lagging three-month market data from 73 Metropolitan Statistical Areas (MSAs). The index is a barometer of single- family real estate market conditions with readings ranging from 1.00 to 10.00. A reading of 1.00 indicates a weak market showing no signs of improvement; a reading of 10.00, a strong market with no signs of deterioration. A reading of 6.00 to 8.00 indicates a stable market.
Market Rating Year Ago Last Quarter Current Strong 8 7 7 Stable 58 61 59 Soft or Weak 7 5 7
Siegel notes that seven of the 73 markets tracked by MGIC are currently experiencing "soft" or "weak" single-family housing market conditions. That is substantially better than the second quarter of 1995 when a record 20 markets were rated "soft" or "weak."
"Overall, we are seeing changes in the housing markets as the rate of home price appreciation slows," said Siegel. "In addition, we have seen the rate of home sales decline in a number of markets. However, there continues to be a healthy demand for homes due to low interest rates. The first-time homebuyer market is especially strong. Even with the slowdown in home sales, there is currently not an oversupply of housing, as evidenced by the months supply of homes on the market.
"If there is any segment where some softness is evident, it is in the market for higher-priced homes," notes Siegel. "However, we are watchful of economic trends, such as rising unemployment, slower income growth, and the lack of job growth. At this point, though, housing markets are stable and we do not foresee a so-called 'housing bubble' or a boom-bust price scenario."
Regional and local real estate markets
In the fourth quarter, four markets had the "current conditions" component of their rating changed. Indianapolis, San Francisco, and Salt Lake City were all downgraded from "stable" to "soft." Louisville was upgraded from "soft" to "stable." A total of 17 markets currently have the "short-term projection" component of their rating as "softening."
Buffalo, Indianapolis, Rochester, San Francisco, Salt Lake City, and Syracuse are currently "soft", and San Jose is currently rated "weak." On the other end of the spectrum, Nassau-Suffolk, NY; Orange County, FL; Orlando; Riverside-San Bernardino, CA; San Diego; Tampa; and Washington, DC, are currently "strong", according to MGIC's Market Trend Analysis.
Region Year Ago Last Quarter Current Rating Midwest 6.69 6.88 6.50 Northeast 6.23 6.62 6.31 South 7.44 7.11 7.04 West 6.82 6.82 6.65
The South Region, with a fourth-quarter MTI of 7.04, has now had the highest rating of the nation's four regions for seven successive quarters. The Midwest MTI fell to a record low of 6.50 in the fourth quarter, reflecting the continued loss of jobs in the manufacturing sector which remains the primary source of employment in many Midwest markets.
MGIC's Market Trend Analysis Report is MGIC's assessment of current single-family housing market conditions in each MSA along with a short-term projection of future conditions. The MTI is a numerical rating of single-family housing market health, ranging from 1.00 to 10.00. The rating, which has been calculated for each quarter since the fourth quarter of 1992, is derived from both objective and subjective evaluations of market conditions by MGIC market analysts. It reflects both current conditions as well as expectations of changes in those conditions.
The factual information contained in MGIC's Market Trend Analysis Report was obtained from Economy.com, the National Association of Realtors (NAR) and other third-party sources. Many of the opinions and conclusions of MGIC concerning market trends are based on such information. Though MGIC believes such information, opinions, and conclusions are accurate, MGIC does not warrant the accuracy or reliability of same and no one should rely on them in making economic or financial decisions.
Source: MGIC, the principal subsidiary of MGIC Investment Corporation
