Market Risk

The following graphs are located in the Market Risk tab. Keep in mind that all graphs are based on the Zip Code of the subject property:

Risk of Decline

The Housing Risk Score is a proprietary metric that measures the probability that this zip code's home prices will drop in the next 12 months. The Housing Risk Score is measured on a 0 to 100 scale where a higher score implies greater likelihood that prices will decline in the future.

The Risk Score is derived through multivariate time series models using a combination of fundamental and technical indicators.

Technical indicators exploit inherent inefficiencies in housing prices, which exhibit a high degree of predictable momentum. Metrics include the following: y-o-y change in price (price velocity), y-o-y change in price velocity (price acceleration), and the distance of price from a long term moving average.

Fundamental indicators exploit long-term constraints in both the household balance sheet and the total supply versus demand. These metrics highlight historical conditions in which prices have approached peaks and troughs through multiple cycles, and include the following: affordability measured as the percent of household income used to make the payment on a conventional 30-year mortgage at the going interest rate, the ratio of home prices to household incomes in the area, and the balance of housing supply versus housing demand in the area.

Price Relative to Long Term Average

Current home price index comparison to historical long-term trend is a critical indicator. The greater the price's distance from long term trend line, the greater the likelihood for a snapback or reversion to the long-term average.

Affordability Relative to Long Term Average
Home prices, mortgage rates and household income are important factors in determining the affordability of a home. When affordability is below (above) long-term average, this often reduces (raises) the risk of downturn. As mortgage rates increase, homebuyers’ payments will become a larger part of household income and put downward pressure on home prices.


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