Thursday, May 01, 2008

Dep't of Bad Metrics

by Tom Bozzo

Mike Ivey reports in the Capital e-Times that Madison homeowners rank high for house-poverty:
The city was ranked No. 10 in a survey of places with the highest concentration of homeowner debt because of home equity loans or second mortgages. It said 27 percent of homeowners here have a second mortgage or home equity line of credit.

Sacramento, San Diego, Washington, D.C., and Colorado Springs were ranked as the four markets with the highest debt load. Denver, Minneapolis, Los Angeles, Boise [?!], Las Vegas and Madison rounded out the top 10...

The survey was based on U.S. Census data to determine which of the country's largest 150 housing markets had the highest percentage of outstanding home equity and second loans. Forbes combined that data with housing price trends from the National Association of Realtors, to gauge which markets are experiencing steep price drops.

You'd have to wonder about a ranking that puts Minneapolis and Boise ahead of Vegas on the stress-o-meter. Other statistics aren't so dire. Also via Ivey, who has an excellent long piece on stalled residential construction projects in the area:

At the same time, the Madison area housing market has held up better than a lot of places. In Nevada, for example, nearly one in 140 households was facing a mortgage foreclosure last month. In Dane County, the figure was just one in 2,598, according to RealtyTrac.

That 1-in-2600 foreclosure rate is a considerable increase over pre-crash rates, but the level is a bit more like it. The Madison metropolitan area as a whole never saw the sort of house-price inflation (I should update this graph) that dangled hundreds of thousands of dollars of ephemeral equity in the faces of Joe and Jane Homeowner, in contrast to the Irvine Housing Blog's tales from Real Estate Hell. Which is not to say that I'd want to have to sell my house anytime soon.

Anyway, the mere presence of home equity loans and/or HELOCs doesn't say a whole lot. They're a source of relatively cheap credit, and if you have to borrow money, cheap is good. You'd never say that a HELOC borrower was more stressed than an otherwise identical borrower who had the HELOC debt on credit cards. As with many tools, they're dangerous when misused — and, moreover, widely were — but Forbes seems here to have gone for the data that was around rather than data that were directly on-point.

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"You'd have to wonder about a ranking that puts Minneapolis and Boise ahead of Vegas on the stress-o-meter."

Can't speak for Boise, but Minneapolis crashed sooner than Vegas by at least a year—and it was ugly in percentage terms the last time I checked.

I suspect that Boise is the same issue as Colorado Springs—ex-Californians artificially inflated the market with their own Bubblicious(r) gains, and then the music stopped.

And, compared to OR and WA, ID doesn't really have that much to make such prices sustainable.

Otherwise, What You Said.
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