In its Summer 2019 Housing and Mortgage Market Review, Arch MI [1] seeks to find out why some towns have exponential growth while others do not. These modern “boomtowns” could be one of two types: those that have been booming for decades, and those that are just recently taking off.
Some cities, such as San Francisco, felt the rush of the “dot com” in the 1990s as well as another tech boom post-2010. Other cities have seen an overflow from Silicon Valley, such as Austin, Boise, Dallas and Ogden, Utah. Texas cities, like Austin and Dallas, benefit from a favorable business climate. According to Arch MI, Texas, Florida and Tennessee are known as low-tax, low-regulation states. These factors are what make a “boomtown,” Arch notes, as they are what drives strong growth.
Outside of boomtowns, home price risk increases. Arch MI states that a falling population is the worst-case scenario for home prices, since people can’t take the home with them when they leave and there are fewer people interested in buying.
The states most at risk for a home price correction are Alaska, West Virginia, North Dakota and Wyoming. However, conditions in these states are improving. Also on the list are California, Colorado, Idaho, Oregon and Washington, due to their unusually high home prices compared to historic norms of affordability.
By metro, Miami and Lakeland in Florida have the highest Risk Index values. Arch notes that the Lakeland area is estimated to have a 45% chance of a price decline over the next two years, while unsold condos and overvalued home prices in Miami are bringing its risk up.
According to the report, the average probability of home prices being lower in two years increased from 9% to 11% over the quarter. Housing market conditions are somewhat weaker than expected, given the strong job market and low interest rates, due to affordability issues, particularly out West, and the heightened concern of potential buyers about the future path of incomes and home prices.