PMI, the Private Mortgage Insurance Company, knows something about risk, and every year the company publishes a “risk index” which sizes up the potential for decline in major housing markets. The latest index was released in late January. Not surprisingly, the riskiest markets are on the west coast, with Sacramento leading the way with a 60.4% risk of declining home values. The riskiest non-California market is the Nassau-Suffolk Counties area of Long Island, with a 60% risk factor. Contrast that with the Charlotte, NC, area with a 9% decline potential, or San Antonio with a 7.5% risk. That’s quite a spread for those considering moving south in a few years, and maybe it argues for taking your lumps now rather than later.
Financial advisors are always preaching about conservative portfolios of investments as you approach or enter retirement. The mantra is to reduce your risk, and being of a certain age ourselves, we can’t argue with that. But it seems the same advice might apply to housing, no?
Consider this. Your home on Long Island (or wherever) is not appreciating and isn’t likely to for the next few years, according to many sources. That gated golf community you’ve had your eye on in the Charleston area is appreciating at close to 10% annually and seems likely to continue to do so as more and more baby boomers head south. How much risk do you want to take that next year your primary home may appreciate enough to keep up with the appreciation of the house you want to buy in a few years down south? And if you are still waiting five years from now, will you have to settle for, say, a wooded view rather than a lake view?
For the adventuresome, housing futures, which trade pretty much like stock market futures, may be an intermediate strategy, especially if you live in one of the 10 markets you can bet on (or against). For more information, a simple Google search by the term "housing futures" will provide some information.
In the spirit of full disclosure, we own shelter in Connecticut and, with one child three years from college, we have a convenient excuse not to take our own advice. Out of impetuous dumb luck, we bought a condo near the coast in South Carolina seven years ago. So we have some yang to go with the yin of a soft market in the Hartford area. But three years from now, as empty nesters, the view from here will be very different.