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| Head West for Brighter Prospects |
| Written by Jonathan Smoke | |
| 01.10.2008 | |
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Discuss this article on the forums. (0 posts) We begin the new year with a view towards the future and serious thoughts that 2008 will be better for housing in many markets than 2007 turned out to be. Looking back, it was amazing that we came through 2007 as well as we did. While the bubble was deflating in the formerly frothy markets, we were hit by a massive credit crunch that then made the deflation even worse. And since gloomy headlines sell newspapers, magazines and web clicks, the media leveraged limited market price index data to convince consumers that prices will only fall in the future everywhere. Against such pressure it’s amazing that even one house sold in December. Yes that’s a ludicrous statement filled with sarcasm. At least two were sold—count on it. But, if McCain and Clinton can stage a miraculous comeback from the near abyss of failure (more sarcasm), surely housing has a chance to see something positive in 2008. I don’t have a crystal ball but I do have a Housing Prospects Index, and we’ve tweaked a few of its components to make it even better for identifying the relative prospects of markets around the country and how they will fair in the future. 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 five 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 for housing.  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 (and divided by the number of households to control for relative market size). 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 five 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 based on the Moody’s Economy.com forecast of home prices over the next five years. The more months the forecasted home price falls below its current level, the more risky the market is judged to be. Markets where the price is more likely to drop are scored as more risky and thus given a lower Home Price Risk Index Score. Markets with a score of 100 have no months in the next five years where the price declines. 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. So where are the brightest prospects according to our latest calculations? Mostly in the West. Here are the top 20 MSAs according to the January 2008 Housing Prospects Report: Tyler, TX Bend, OR Victoria, TX Sherman-Denison, TX Fort Collins-Loveland, CO Longview, TX Texarkana, TX-Texarkana, AR Anchorage, AK Mount Vernon-Anacortes, WA Boulder, CO Morgantown, WV Bowling Green, KY Midland, TX Brownsville-Harlingen, TX El Paso, TX Mobile, AL Dallas-Fort Worth-Arlington, TX Houma-Bayou Cane-Thibodaux, LA Hot Springs, AR Tomorrow I will review the bottom 20. The Housing Prospects Report is available to all National Enhanced subscribers. 
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