| What does the Housing Prospects Index cover? |
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The Housing Prospects Index was constructed for the purpose of judging the relative prospects or attractiveness of each MSA in the US for future housing performance. The index is composed of four underlying indices that measure the current local housing market equilibrium, the prospects for the local economy over the next five years, likely home price appreciation over the next three years, and the possibility for home price declines in any of the next five years. Each index has possible values from 0 to 100. For all indices, higher values indicate brighter prospects or better conditions. The Housing Market Index is based on the difference between total housing demand (based on household growth) and total household supply (based on total permits) over the last 36 months. It measures how far out of equilibrium the market is currently perceived to be. Markets with the biggest oversupply receive the lowest Housing Market Index scores, while markets with the most undersupply receive the highest scores. The Local Economy Index looks at forecasted unemployment growth, forecasted income growth, and forecasted job growth over the next five years, and gives those markets with the biggest collective improvements the highest index score. The Home Appreciation Index looks at home appreciation forecast for the next three years. Markets with the highest forecasted level of home appreciation receive the highest scores on the index. The Home Price Risk Index measures the relative likelihood of seeing housing market price declines. The index is created using a Monte Carlo simulation to arrive at a probability that a future price, in any quarter over the next five years, falls below the most recent quarter value. Markets where the price is more likely to drop are scored as more risky and thus given a lower Home Price Risk Index Score. The Housing Prospects Index averages the scores from the four component indices to provide a representation of the overall prospects for each market relative to all markets. Source: All data used in the indices are based on data from Moody's economy.com. |
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