Chicago Destined for Housing Bust? Maybe Not...

By Andrew Peerless in Miscellaneous on Jul 28, 2005 1:30PM

Chalk it up to the fact that Chicagoist is mildly preoccupied with the real estate industry, or that we're hopelessly addicted to Curbed... but we kinda feel like everyone and their realtor are talking about a "housing bubble" these days. Are home prices really about to plummet across the nation, ending a multi-year boom for the residential real estate sector? Will the granite countertops and stainless steel appliances of today be the worthless Beanie Babies of tomorrow?

According to the folks at the PMI Mortgage Insurance Company, publishers of a quarterly US Market Risk Index... maybe not! PMI's most recent study of the nation's 50 largest housing markets indicates that, while some markets are essentially screwed (uh, sorry Boston, New York and San Diego), Chicago isn't necessarily one of them. Cities teetering closest to a crash are estimated to have a bust potential topping 50 percent, while Chicago's risk level is estimated at only 9.2 percent. That puts us on thirty-third on the list, on a level playing field with Houston and Phoenix, only slightly worse off than St. Louis.

So, how do these PMI folks figure this stuff out? According to them...

The Risk Index is a proprietary statistical model that measures geographic house-price risk by predicting the probability of a regional decline in home prices in the nation's 50 largest metropolitan statistical areas (MSAs) and metropolitan statistical area divisions (MSADs) over the next two years. The PMI US Market Risk Index is based on the House Price Index from the Office of Federal Housing Enterprise Oversight (OFHEO), labor market statistics from the Bureau of Labor Statistics and the PMI affordability index, which uses local median household income, home price appreciation and the price of a conventional mortgage to calculate the local share of mortgage payment to income relative to its baseline year of 1995.

(Crickets chirp... Chicagoist scratches its head and looks for someone with glasses that can understand what this means....)

Ok, we think got it! PMI monitors home affordability in a given area, and compares prices with the region's median incomes and annual salary increases to see if things are getting out of hand. In Boston, New York and San Diego, home prices must be increasing so quickly that, pretty soon, people just won't be able to pay for them.

So, where does that leave us? Seems like Chicagoland homeowners are in a pretty good spot... especially if they're single! While we're talking lists, Forbes thinks we're the ninth best city for singles, scoring especially high in the "coolness" and "job growth" categories (take that, Phoenix and St. Louis!). In the meantime, Forbes also thinks we're the fourth most overpriced U.S. city, so who cares what they think?

At least we know our money only has a 9.2 percent chance of going away...