Last July, I posted results from the PMI Summer 2008 housing market report. Back then, St. Louis was listed as having only a 1% chance that housing prices will be lower in 2 years.
The PMI Report update is out for the 3rd quarter 2008.
PMI recognized that their model has been underestimating declining markets in the last few years. As a result, they changed the way that they calculate & classify risk.
Changes include:
- PMI changed the index that they use to determine sale prices since the former index resulted in biased pricing from inclusion of refinanced properties
- PMI changed from a state based measure of mortgage foreclosures to a Metropolitan Statistical Area (MSA) based model in order to more accurately capture the impact of foreclosures at a local level
- Foreclosure rates have been given more weight since areas with high foreclosure rates are more prone to price declines
- Risk category ranges have been modified
States with the highest risk of price declines in their MSA’s in the next 2 years:
- Florida
- California
- Arizona
- Nevada
In addition, MSA areas that are located in the industrial Midwest and the East Coast are seeing increasing levels of price declines due the decline in manufacturing (especially automobile industry) and the financial sector crisis.
States with increasing foreclosure rates:
- Nevada
- Florida
- Arizona
- California
- Michigan
- Rhode Island
- Illinois
- Indiana
- Ohio
So how does St. Louis compare to areas with high risk of price declines?
The St. Louis MO-IL MSA is classified as having minimal risk for price declines. The risk of price declines in the next 2 years has increased from 1.8% to 9.3%. However, PMI still finds that there is a less than 10% chance that prices will go down in the next 2 years.
Other numbers for St. Louis include:
- Low price volatility at only 5.9% - lower volatility means more stable prices
- Low levels of price depreciation - even though prices did depreciate in the 3rd quarter of 2008, they only went down -4.32% which is much lower than many other areas in the country
- Homes are more affordable than they were in 1995 – St. Louis homes are more affordable with a rate of 116.14 (a rate of 100% means that there was no change in affordability since 1995)
Many buyers have been sitting out of the market because they are afraid of prices going down. They listen to the national news and hear about the problems in states like California and Florida.
Red areas – highest risk
Blue areas – lowest risk
It’s time for buyers in the St. Louis area to recognize that it is a great time to buy. Interest rates are low, a first time buyer credit is available for those that qualify, sellers have dropped their prices to reflect market conditions and there is minimal risk that home prices will drop further in St. Louis.
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