Sacramento Ranks High on Ratio of Risky Loans & Investment Homes

Business Week has a very useful table ranking the vulnerabilities of 30 metros areas, including Sacramento. As usual, the Sacramento housing market ranks near the top on the majority of risk indicators.

• Change in House Prices 2000-2005 (%)
• 122%
• Ranked 4th (most appreciation)
  
• Housing Opportunity Index (high numbers are most affordable, 1-100)
• 7
• Ranked 4th (least affordable)
• Luxury Housing Affordability Index (numbers above 100 are more affordable)
• 93%
• Ranked 7th (least affordable)
  
• Cost of Renting in Proportion to Cost of Owning (lower percentages mean renting is cheaper)
  (%)
• 46%
• Ranked 4th (cheaper to rent)
• Homes Bought as Investments, 2005 (%)
  
• 15%
• Ranked 4th (highest)
• Purchase loans requiring interest only, 2005 (%)
• 50%
• Ranked 6th (highest)
  
• Purchase loans permitting negative amortization, 2005 (%)
• 18%
• Ranked 4th (highest)
  
• House Prices in America valuation (numbers above zero mean overvaluation) (%)
• 64%
• Ranked 2nd (most overvalued)

DEFINITIONS:

CHANGE IN HOUSE PRICES
Change in average home prices from the fourth quarter of 2000 to the fourth quarter of 2005.
Data: Office of Federal Housing Enterprise Oversight.

HOUSING OPPORTUNITY INDEX
The percentage of nex and existing homes sold in the fourth quarter of 2005 that were affordable by a family earning the metro area’s median income.
Data: National Association of Home Builders.

BW'S LUXURY HOUSING AFFORDABILITY INDEX
BusinessWeek's own index of the affordability of luxury homes. It measures whether a family whose income is at the 90th percentile of area incomes (90% of families earn less; 10% earn more) can afford a house whose price is at the 90th percentile of all house prices in that area. It takes into account mortgage rates. As of fourth quarter, 2005.
Data: Fidelity National Inc., Federal Housing Finance Board, Dept. of Housing & Urban Development.

COST OF RENTING IN PROPORTION TO COST OF OWNING
Monthly cost of renting a house as a percentage of the monthly cost of owning a similar house, including mortgage payments and maintenance. As of 2005.
Data: Torto Wheaton Research, a unit of CB Richard Ellis.

HOMES BOUGHT AS INVESTMENTS
Percentage of homes purchased with a mortgage that are bought as investment properties, as noted on loan documents, in 2005.
Data: LoanPerformance.

PURCHASE LOANS REQUIRING INTEREST ONLY
Percentage of homes purchased with a mortgage requiring interest payments only, as noted on loan documents, in 2005.
Data: LoanPerformance.

PURCHASE LOANS PERMITTING NEGATIVE AMORTIZATION
Percentage of homes purchased with a mortgage allowing negative amortization, as noted on loan documents, in 2005. Interest that is owed but not paid is added to the loan’s principal.
Data: LoanPerformance.

HOUSE PRICES IN AMERICA VALUATION
Percentage of overvaluation (positive numbers) or undervaluation (negative numbers) based on a formula that takes into account house prices, interest rates, household incomes, population densities, and historical price patterns.
Data: Global Insight Inc. and National City Corp.