Sharpening residential mortgage default assessment

Pop quiz.  Two different parts of the country.  Two houses.  Two mortgages.  Same credit score.  Identical LTV.   Which loan has a higher likelihood of defaulting?  The answer, unsurprisingly, is:  ‘It depends’.  It depends on the local economic conditions.  It depends on how house prices move in those areas.  The area where house prices decline more will have a higher likelihood of the loan defaulting.  The loan in the area with more jobs, better wages, and higher growth prospects is less likely to default.

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HousingIQ: Q2 2019 Housing Market Vitality Highlights

Housing market vitality at eight-year high.
Economic conditions support over 6% increase in house prices.
Steady uptick in number of markets with decreasing prices.

The US Housing Market Vitality Indicator (HMVI-US) closed Q2 2019 at an eight-year high reading of 106.6. The 0.32 point year-over-year increase and 0.39 point quarterly increase indicate prevailing house price trends will continue in the short term. Market strength was widespread with local economic conditions exerting a positive impact on 373 out of the 402 metro housing markets (93%) tracked by HousingIQ. Q2 2019 ended with house price changes in 131 metro markets (33%) forecasted to outperform the national market.

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(Z)estimating future house values

Zestimate just got a makeover – it’s smarter and sees better.  Incorporating ideas from the Zillow Prize, it’s now more accurate and “half of all Zestimates fall within 2% of the home’s eventual sale price.” That accuracy comes with a caveat. It is for Zestimates of for-sale properties.  For homes that are not listed for sale, the error is 7.7%.  Nevertheless, for home buyers, Zestimates give a good, usable idea of current house values.

But what about future house values?  The Zestimate forecast predicts the change in the Zestimate over the next 12 months based on past Zestimate values and the Zillow Home Value Forecast.  The Zillow Home Value Forecast forecasts the change in the Zillow Home Value Index (ZHVI) over the next 12 months.  And all this boils down to: improved forecasts of the Zillow Home Value Index power better (Z)estimates of future house values. 

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The data behind the housing market optimism and weakness

In mid-June, Nobel laureate Robert Shiller summarized the upbeat findings of a housing survey with “At an average rate of more than 6%, household expectations for home prices over the next 12 months are remarkably high.”  He described the expectations as reflecting a “healthy optimism”.

So what’s behind the optimism?  Can we measure it?  Can we explore it? 

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HousingIQ: May 2019 Housing Market Vitality Highlights

Recent house price trends to continue. Economic conditions support 6% increase in house prices.

The US Housing Market Vitality Indicator (HMVI-US) closed May 2019 at 106.2. The insignificant 0.03 point year-over-year decrease and 0.08 point increase in the three-month moving average indicate prevailing house price trends will continue in the short term. Market strength was widespread with local economic conditions exerting a positive impact on 386 out of the 402 metro housing markets (96%) tracked by HousingIQ. May 2019 ended with house price changes in 168 metro markets (42%) forecasted to outperform the national market.

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Knowledge-economy and house prices: positively related

Plentiful, better paying jobs drive local housing markets.  This link between economic performance and metro housing markets underlies the Housing Market Vitality Indicators (HMVI).  With over 100 months of historic data covering all metro areas, the HMVI are well-studied, tested, and validated.   What has been missing thus far is an independent assessment of metropolitan area economic performance.  

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HousingIQ: April 2019 Housing Market Vitality Highlights

The US Housing Market Vitality Indicator (HMVI-US) closed April 2019 at 106.2. The insignificant 0.07 point year-over-year increase and 0.1 point increase in the three-month moving average suggest current economic conditions will continue to support prevailing house price trends. Market strength was widespread with local economic conditions having a positive impact on 387 out of the 402 metro markets (96%) tracked by HousingIQ. April 2019 ended with 167 metro markets (42%) forecasted to outperform the national market.

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HousingIQ: Q1 2019 Housing Market Vitality Highlights

The US Housing Market Vitality Indicator averaged 106.3 during the quarter – a negligible 0.1% drop from a year ago.   Values greater than 100 correspond to underlying economic factors exerting a positive impact on future house prices.  Market strength was widespread with 391 out of the 402 metro markets (97.3%) tracked by HousingIQ being positively impacted by economic factors.  Q1 2019 ends with 164 metro markets (40.8%) forecasted to outperform the national market.

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