Freddie Mac Index Helps Track Stability of Housing Market

April 07, 2014
Housing stability in Alaska

Alaska has one of the most stable housing markets, according to MiMi, a new index from Freddie Mac. (Bill Roth, Anchorage Daily News / April 4, 2014)

Does the world need yet another housing market indicator? We’re already treading water in a monthly numerical flood of data on home sales, mortgage applications, foreclosures and even a survey that supposedly measures whether homebuilders are nervous.

Most of this is stuff that only an economist could love, but mortgage financier Freddie Mac recently rolled out one more metric that might actually be useful to the average homebuyer or seller. Of course, as with most of the other data reports, it has a name — the Multi-Indicator Market Index — that instantly says “don’t read me” to the consumer. But Freddie mercifully has made the monthly report more approachable by nicknaming it MiMi.

MiMi’s creators hope that the tool, found at freddiemac.com/mimi, can give would-be homebuyers and sellers some grasp of their local markets’ stability — or lack of same, for the inaugural version isn’t very encouraging about the state of the housing market overall.

MiMi is a numerical score that grades market stability for 50 major metropolitan markets and for every state and the District of Columbia, according to Frank Nothaft , Freddie Mac’s chief economist, who recently hosted a telephone news conference to introduce it.

Here’s how it works: It’s a mashup of four monthly indicators:

Single-family home purchase applications. Simply stated, an increase in purchase applications would mean that home sales financed with conventional mortgages are on the rise.

Payment-to-income ratios. That is, how payments on 30-year fixed loans stack up, relative to area incomes. If MiMi ranks this element in an “elevated” range, it could be a sign that house prices are rising too rapidly and becoming unaffordable to the median-income family.

Mortgage payment currency. How many of the mortgage holders in a state or metro area are up-to-date with their payments?

Employment levels. The proportion of the labor force employed.

MiMi stirs these four factors together, derives a score and on the website posts a colored block that describes an area’s current status as weak, in range (prices, demand, affordability and sales are stable and sustainable) or elevated (overheating).

MiMi’s inaugural slaps a “weak” label on the national market, although finds it improving slightly. MiMi gave it a score of minus 3.08, although it pegged the all-time low of minus 4.49, which occurred in November 2010.

Eleven states are stable and in range, with North Dakota, Wyoming, Alaska, Louisiana and Washington, D.C., ranking highest.

The five most-improving metro areas in the past month were Miami, Detroit, Orlando, Fla., San Antonio and Chicago, all of which showed incremental gains in the MiMi scale.

So do we need yet another dose of monthly data? Nothaft said Freddie Mac’s approach was unique and something non-economists could get their arms around.

“One thing I particularly like is that it focuses on multiple metrics and summarizes them in one single index value,” he said. “The way we’ve presented it makes it very accessible.”

Though Nothaft’s forecast expects some increases in overall home sales a speed bump may be lurking.

“We’re anticipating that fixed-rate mortgages might rise as much as a one-half of 1 percent from where they are, by the end of the year,” he said. “That would put them, nationally, at 4.9 percent.

“That’s important for a lot of homebuyers,” he said.

Which brings us back to MiMi, he said.

“It will give the potential homebuyer a sense of where (the local market) has been in the last three months,” Nothaft said. “Should I buy or should I hold off?”

This post originally appeared on ChicagoTribune.com on April 4, 2014.

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