Market trend index down from last year, MGIC reports

Real Estate Weekly, April 30, 2003

Mortgage Guaranty Insurance Corporation (MGIC) reported that its national Market Trends Index (MTI) was 6.62 in the first quarter, down from 6.70 in the fourth quarter of 2002 and 6.81 a year earlier, reflecting the sluggish economic conditions nationally. Despite the decline, the nation's single-family housing markets remained stable; however, it appears as if the trend toward increasing softness and reduced appreciation rates in some areas is growing.

"The National Market Trends Index slowed during the first quarter as the U.S. economy continued to struggle to maintain its meager recovery," said Neil Siegel, MGIC's Senior Market Analyst. "Much of this is associated with the lack of job growth. Overall, the single-family housing market remains healthy, as reflected by the continued low inventory of new and existing housing units. In particular, demand by first-time homebuyers remains strong, thanks to low interest rates which are boosting affordability."

MGIC's MTI is based on the Market Trend Analysis Report produced quarterly by MGIC's Credit Policy Department using lagging three-month market data from 73 Metropolitan Statistical Areas (MSAs). The index is a barometer of single-family real estate market conditions with readings ranging from 1.00 to 10.00. A reading of 1.00 indicates a weak market showing no signs of improvement; a reading of 10.00, a strong market with no signs of deterioration. A reading of 6.00 to 8.00 indicates a stable market.

Siegel notes that eight of the 73 markets tracked by MGIC are currently experiencing "soft" or "weak" single-family housing market conditions. "While single-family conditions remain stable, we continue to see some softness in the market for high-priced homes," said Siegel. "We have also noticed that there has been a decrease in the Market Trends Index in all regions of the country largely because of slipping consumer and business confidence and continued job losses. This is contrary to what we experienced in the early 1990s when only certain single-family markets were negatively impacted by economic factors."

In the first quarter, only one market had the "current conditions" component of its rating changed. Austin, Texas, which had a single-family market rating of "strong" for seven successive quarters, ending in the fourth quarter of 2001, was downgraded from "stable" to "soft." No markets had their current conditions component upgraded in the first quarter, and a total of four markets had the "short-term projection" component of their rating downgraded in the quarter. Of the 58 markets currently rated as "stable" in MGIC's Market Trend Analysis, 20 have a short-term projection of "softening."

Austin, Buffalo, Indianapolis, Rochester, San Francisco, Salt Lake City, and Syracuse are currently "soft", and San Jose is currently rated "weak." On the other end of the spectrum, Nassau-Suffolk, NY; Orange County, CA; Riverside-San Bernardino, CA; San Diego, CA; Orlando, FL; Tampa, FL; and Washington, DC, are currently "strong", according to MGIC's Market Trend Analysis.

The South Region, with a first-quarter MTI of 6.93, has now had the highest rating of the nation's four regions for eight successive quarters. The Midwest MTI fell to a record low of 6.44 in the first quarter, reflecting the continued loss of jobs in the manufacturing sector which remains the primary source of employment in many Midwest markets.

MGIC's Market Trend Analysis Report is MGIC's assessment of current single-family housing market conditions in each MSA along with a short-term projection of future conditions. The MTI is a numerical rating of single-family housing market health, ranging from 1.00 to 10.00. The rating, which has been calculated for each quarter since the fourth quarter of 1992, is derived from both objective and subjective evaluations of market conditions by MGIC market analysts. It reflects both current conditions as well as expectations of changes in those conditions.

The factual information contained in MGIC's Market Trend Analysis Report was obtained from Economy.com, the National Association of Realtors (NAR) and other third-party sources. Many of the opinions and conclusions of MGIC concerning market trends are based on such information. Though MGIC believes such information, opinions, and conclusions are accurate, MGIC does not warrant the accuracy or reliability of same and no one should rely on them in making economic or financial decisions.