Forbes recently released another top 10 list, this time the “top 10 riskiest U.S. Housing Markets”.
The level of risk is based on a number of factors, including percentage of homeowners with an adjustable-rate mortgage, percentage of homeowners with a loan-to-value of 90% or higher, price to earnings ratios for the cities, and vacancy rates.
Because mortgage rates are thought to rise in coming years, many believe high concentrations of adjustable-rate mortgages will lead to more defaults, foreclosures, and a dead market.
Along those same lines, high loan-to-values could lead to mortgage defaults as well, with homeowners walking away if very little equity is invested.
The price to earnings ratio for cities is the market’s median home price divided by annual rents minus taxes and insurance for those properties. So it can indicate if a market is overvalued and due for a correction.
Finally vacancy rates were used, which measure the economic stability of a housing market, through supply and demand.
After careful analysis, the top 10 list of Riskiest U.S. Housing Markets:
1. Miami
2. Orlando
3. Sacramento
4. San Francisco
5. San Diego
6. Phoenix
7. Kansas City
8. Cincinnati
9. Chicago
10. Denver