Phoenix Will Be Up, Poughkeepsie Down

JAN 8, 2013 3:29pm ET

WE’RE HEARING…a lot about rising single-family asset values, but whether home prices really are appreciating depends on where the assets are.

Veros is projecting 3.1% depreciation for houses in Poughkeepsie, N.Y., for example, and Fitch is warning that there are still some overvalued markets out there.

But just try asking a Phoenix resident like About.com U.S. economy expert and global business consultant Kimberley Amadeo if overvaluation is a problem there and she’ll tell you, “I wish!”

Amadeo told us she has seen extremely rapid appreciation in Phoenix—a neighbor’s resold house went up $52,000 in price in just two months—and, despite this, her home’s value still hasn’t risen above 2005-2007 levels.

“It’s that kind of a market,” she told me.

This is in line with Veros’ assessment of Phoenix as the top prospect for home price appreciation with a projected 10.5% increase in values this year.

But if you have taken a look at the Veros data you know that’s the exception rather than the norm. Veros has the top 100 markets pegged for an average of 1.2% worth of appreciation.

Still, those investing in private-label mortgage-backed securities should note:  only 30% of the markets in Veros’ forecast have depreciation in their future. Also the company’s vice president of statistical and economic modeling Eric Fox tells me these markets won’t be down by much, certainly far less than 10%.

The moral here is that, although most securitizations naturally strive for diversification, investors should keep an eye on their geographic concentrations and make sure they’re not overexposed to any problem spots. Or if you have a bit of an appetite for risk, you might want to look to buy assets that can be priced at a discount and timed with an investment horizon that works for you.

The appreciation in Phoenix is primarily from the foreclosure bubble working out, and foreclosures that haven’t yet made their way through the pipeline are holding back some of the markets still struggling in places like New York and New Jersey.

This means investors with an appetite for it should carefully consider buying properties or REO-to-rentals in still-struggling markets. So long as you have the wherewithal to wait the recovery cycle out, are confident there will be one, and feel the discount properly accounts for the possibility of depreciation and the likelihood of recovery down the road, it’s worth it.

Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.

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