July 8, 2009

PMI’s Market Risk Index Report: 1st Quarter 2009

PMI Risk Chart: 1st Quarter 2009

According to the latest PMI Market Risk Index, the San Francisco-San Mateo-Redwood City MSAD ended the first quarter of 2009 with a 66.2% likelihood of house price declines over the next two years, up from 31.6% in the fourth quarter of 2008, up from 30.2% in the fourth quarter of 2007, and up from 39.5% at the beginning of 2005.

The likelihood of decline for a few other nearby areas: Sacramento-Arden-Arcade-Roseville (99.9%), Oakland-Fremont-Hayward (96.4%), San Jose-Sunnyvale-Santa Clara (78.4%).

Keep in mind that the PMI Market Risk Index is tied to the OFHEO house price index which "excludes jumbo loans and the large portion of subprime and Alt-A loans that Fannie Mae and Freddie Mac don’t participate in."

· Economic and Real Estate Trends: 2nd Quarter 2009 [PMI Group]
PMI’s Market Risk Index And Real Estate Trends Report: Spring 2008 [SocketSite]
Economic And Real Estate Trends: Spring 2005 [SocketSite]

First Published: July 8, 2009 10:00 AM

Comments from "Plugged In" Readers

PMI wrote:

> The likelihood of decline for a few
> other nearby areas: Sacramento-Arden-
> Arcade-Roseville (99.9%)

I've heard that some Realtors trying to sell homes are saying that there is a 99.9% chance that we have "hit bottom" and prices will soon be going up...

Posted by: FormerAptBroker at July 8, 2009 10:31 AM

Has anyone heard about a possible bail out of Private Mortgage Insurance Companies? The company PMI had a stock price of ~$50 a share last year at this time and it is now at ~$1.50. If they are telling us that many markets have a 99.9% chance of home price declines in the next couple years it seems like they will probably be BK (or Govenrment owned like Fannie, Freddie and GM) in the next year...

Posted by: FormerAptBroker at July 8, 2009 10:43 AM

I've heard that some Realtors trying to sell homes are saying that there is a 99.9% chance that we have "hit bottom" and prices will soon be going up...

I heard that you make a lot of stuff up and post on the internet for kicks.

Posted by: anonn at July 8, 2009 10:47 AM

I hear the RE agents have nothing better to do than post on blogs and try to belittle anyone who dares to point out the emperor has no clothes. Of course there's a conspiracy theory of those doom and gloom crowd trying to bring down the housing market by pointing links to data saying the market is coming down... if only those guys would stop we'd all go back to RE being a complete sound investment.

Posted by: asad at July 8, 2009 11:06 AM

No, you didn't hear that, and no, "the emperor has no clothes" is not the refrain of the sour soul who has very often uttered sheer fabrication you're seemingly defending, and I'm quite busy these days, two sales in the past week or so .... but feel free to keep your snide little persona in the tall snide clover

Posted by: anonn at July 8, 2009 11:11 AM

Everyone in the RE food chain is trying to buy time until a miracle rebound saves them. Bankers, Realtors, Mortgage Brokers, over-indebted homeowners.

A repost but worth the time:

http://www.calculatedriskblog.com/2009/07/cnbc-interview-with-bryan-marsal-ceo-of.html

"Everyone is trying to buy time, as opposed to dealing with the leverage, they are trying to buy time. Whether you are a banker or a company, they are all trying to buy time."

Bryan Marsal, CEO of Lehman Brothers Holdings.

Posted by: San FronziScheme at July 8, 2009 11:17 AM


The site below is:

"Why It's a Great Time To Buy Real Estate in Florida!"

http://media.floridarealtors.org/greattimetobuy/TimeToBuy/

Of the 15 reasons why it is a great time to buy, my favorite is:

"Beneficial for kids. Studies show that children raised in homes owned by their families are more likely to stay in school and more likely to graduate high school. They’re also shown to have a higher lifetime annual income."

It looks like anyone stupid enough to rent is not only missing out on buying an asset at the bottom and getting rich, but they are also hurting their kids who will probably drop out of high school and get a crappy job since they won't be able to handle all the kids making fun of them for living in a rental house...

P.S. I bet anonn thinks that I just put the site above up on the web "for kicks" since 100% of all Realtors ® show prospective buyers the PMI report and explain how using leverage can easily turn a home purchase today in to a 100% capital loss...

Posted by: FormerAptBroker at July 8, 2009 11:25 AM

Real estate has never been a sound investment considering my options. Its an emotional one.

Posted by: Tall Guy at July 8, 2009 11:33 AM

Why would Oakland be at 96% and San Francisco at 66%? It seems to me that Oakland has already fallen by as much as 50% in most areas while San Francisco maybe %20%. I would think the numbers should be reversed as SF has much more room to move....

Posted by: Jim at July 8, 2009 11:41 AM

SS, please keep posting stories like this. Data doesn't lie, and as much as agents and buyers may have to weed through trolling commentators interpretations of this, it's essential that prospective buyers like myself have facts to base our decisions upon.

Related to the PMI risk topic however, and tying it into the possible outcome of a simple 7% depreciation (re: the 20th St. SFH from yesterday), I can't see how ANY purchase of RE in SF right now is a good idea. That is unless you have 20% down, a solid cash reserve (5% or more) and are comfortable living in the property for the next five years at a minimum. Otherwise, get out of the game.

Posted by: nottimhawko at July 8, 2009 12:00 PM

In response to the Sacramento area interest; Roseville has a few pockets that are very desirable. I have seen a few REO sell @ 199K and just recently via Zillow the same size home (apple/apple) sold at 260K. Granted much of Sac is in the tank; but this has to be a decent sign for people in the area?

RE: See zillow Horncastle Ave Roseville - see solds from a few months ago to sold last month and you will see a 70K increase on same cookie cutter home.

Posted by: Mike L at July 8, 2009 12:11 PM

Posted by: Mike L at July 8, 2009 12:16 PM

apple to apple?

I see the 266K sale last month, but not the 199K REO sale. Or was it an REO advertised at 199K that finally sold for 260K.

Something I see though is the late 2005 497K "Zestimate".

I do not see a green shoot there. Just yellow weeds.

Posted by: San FronziScheme at July 8, 2009 12:25 PM

8028 Robinson sold @ 266K 6/09

7956 Robinson sold @ 192K 4/09

That has to be a good sign for this specific area?

Posted by: mike l at July 8, 2009 12:49 PM

Has anyone been tracking Tahoe prices? Read an article in NYT yesterday that got me thinking about (click name for link).

I still believe that until the top 10% of consumers start to deleverage another 50% we haven't seen anything yet in SF... but maybe that starts first with 2nd homes in Tahoe etc.

Anyone know that market? From looking at trulia + pending foreclosures looks like its off 20-30% or so so far.

Posted by: Mud at July 8, 2009 12:50 PM

Tahoe has been off 20 percent or more for well over a year. Second homes are second homes, the first thing to go.

Posted by: anonn at July 8, 2009 12:57 PM

Ahh, that's OK you can borrow now and pay back later with inflated dollars.

Posted by: missiondweller at July 8, 2009 1:09 PM

Mike L,

1 - How are they apples? Were they in the same condition when they sold? Were they staged? They might be cookie-cutter, but they are more than 9 years old and many things can happen in that time.

2 - I remember the Realtor outrage last year when Case-Shiller indexes were plummeting due to the high number of REOs. It was all "It shouldn't count! They are distressed sales! Not the real market!". Now we're using REOs of the past to measure the market? The rules keep changing every day...

3 - Was there a similar strategy to sell those 2 places? How much effort was put on the REO sale?

4 - 7956 was sold in 2006 for around 420K. Down to 199K, that's 55%. A dead cat bounce might be in the works.


All that tells me is that you should look into REOs first, not the mainstream market! You'll save 20% right off the bat!

Posted by: San FronziScheme at July 8, 2009 1:12 PM

Mike L. wrote:

> In response to the Sacramento area interest; Roseville has
> a few pockets that are very desirable. I have seen a few
> REO sell @ 199K and just recently via Zillow the same size
> home (apple/apple) sold at 260K. Granted much of Sac is in
> the tank; but this has to be a decent sign for people in the area?

Just because a home sells for $70K more in a short period of time does not mean the market is improving.

I have mentioned before that I bought a REO home next to one of my Sacramento apartment buildings for $190K (a guy thinking he was Donald Trump paid $435K for the place back in 2006 gave it back to the bank). I spent over $15K on the place replacing all the windows and doors, painting inside and out and landscaping. I spent many hours on the project (and got to practice my Spanish) doing a full home remodel for less than the cost of a typical SF bathroom remodel.

A $199K purchase and a $260K sale a few months later probably means the flipper made some money, but they took a big risk that they could sell the property in a market where prices are still in free fall (much worse than anywhere in the “Real Bay Area”…

Posted by: FormerAptBroker at July 8, 2009 1:57 PM

F.A.B.

The "apples to apples" we're offered here by Mike L. is for 2 different properties on the same street.

Posted by: San FronziScheme at July 8, 2009 2:15 PM

"Why would Oakland be at 96% and San Francisco at 66%?"

This kind of articles which try to predict the future often is really summarizing the past.

When stocks goes up, we will see this kind of prediction "DJ will reach 40,000 in 1 year". When stocks goes down, we will see "DJ will be 4500". When RE goes up, we will see "90% of the market will have 90% of the chance to appreciate 10% in one year". When RE goes down, we see Oakland has 96% and SF have 66% chance to go down".

What it is really saying is that Oakland WENT DOWN a lot, and SF WENT DOWN a lot but not as bad as Oakland.

Posted by: John at July 8, 2009 5:17 PM

This kind of articles which try to predict the future often is really summarizing the past.

It reminds me of the Buffet criticism of Beta, in which a stock that fell in value by 50% is considered a riskier investment after the price decline than before (because its beta went up :)

I think there are good deals to be had in the east bay, and in many parts of the country now, on a cash-flow basis. Much less risky than SF, using Buffet logic.

Posted by: Robert at July 8, 2009 10:00 PM

The reason we are in this mess is that many, many people bought houses for other than it's intended purpose (habitation). I believe the correct term is "speculation". If you are going to speculate in Real Estate, I hope you know what you're doing; especially in today's market.

If you are a buyer, you should consider taking a long term approach: How long do you think you'll live there, do you like the neighborhood, etc. I know that my parents felt they paid way to much when they bought their house in Palo Alto for $70K in 1974. And they probably did. However, I sold that same house 30 years later for slightly over $1M.

Everything else is just noise and speculation.

M.R.

Posted by: Mystery Realtor at July 9, 2009 8:46 AM

In my experience, not having "REO" or "Short Sale" on the listing is worth 10% or more.

Yes, you can make money but it takes a big capital risk and a ton of paperwork. Try flipping a few REOs and see what you think. I think you'll see that it's not quite the windfall that it appears.

Posted by: Sb at July 9, 2009 9:42 AM

Mud and anonn,

RE Tahoe, I looked at it awhile back, and I thought it would have been down even more. For a second home market, supported by Sacto & Bay Area money, I would have thought people would be unloading big-time. What do you think?

Posted by: Rubicon at July 9, 2009 10:05 AM

Just fyi, this appears to be an attempted flip of a REO that ended as a red ink bath: http://www.redfin.com/CA/Vallejo/2342-Lansdowne-Pl-94591/home/2594390

Posted by: Gandydancer at July 26, 2009 3:46 PM

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