Geographic Distribution of House Price Risk and Gains

Yesterday, we looked at a heatmap of Foreclosures; this turned out to be rather timely, as indicated by a front page article in today's WSJ, In Home-Lending Push, Banks Misjudged Risk:

In a surprise announcement late yesterday, HSBC (HBC) said its subprime-mortgage problem was worse than previously indicated. It said the capital it sets aside to cover all bad debts, including the soured mortgages, would be 20%, or $1.76 billion, higher than analysts' consensus estimates. 'The impact of slowing house price growth is being reflected in accelerated delinquency trends across the U.S. subprime mortgage market, particularly in the more recent loans,' the bank said.

You can see the HSBC docs here. It turns out that "The percentage of HSBC mortgages more than 60 days past due is climbing. Fraud by borrowers has been higher than expected."

Since it's doubtful that HSBC is the only bank that will be increasing its reserves to deal with accelerating foreclosures, let's consider the parts of the country with the highest concentrations of at risk home prices. Fortunately, PMI has already done the heavy lifting for us: They created a map that depicts the geographic distribution of house price risk for all 50 U.S. states and DC.

Now for your homework assignment: Review the maps below, and consider which lenders and homebuilders have the highest exposures to the weakest areas. I'll start: Toll Brothers has a high concentration in the mid-Atlantic states.

Geographic Distribution of House Price Risk

chart courtesy of PMI

The color codes rank order the 10 riskiest states in red (11 including the District of Columbia), followed by the next 10 riskiest states in tan, white, light blue, and aqua.

The Northeastern states and California top the list, but Florida replaced New York in the top 10, a change from the prior year.

For comparison's sake, the following map shows the gains in home prices by region.

Home Price Appreciation

Data source: Census Division, % change over previous four Qs (as of Q3 '06)

There are some who claim this data is irrelevant to the stock market; quite frankly, I simply do not understand that thought process (or the lack thereof).

Sources:
In Home-Lending Push, Banks Misjudged Risk
HSBC Borrowers Fall Behind on Payments;
Hiring More Collectors
CARRICK MOLLENKAMP
WSJ, February 8, 2007; Page A1
http://online.wsj.com/article/SB117088245754201362.html

Early Payment Default
HSBC
http://online.wsj.com/public/resources/documents/info-hsbc_mortgage07.html

PMI releases Winter 2007 Economic and Real Estate Trends report (pdf)
Economic and Real Estate Trends Report
The PMI Group,Winter 2007
http://media.corporate-ir.net/media_files/irol/63/63356/Winter2007ERET.pdf

PMI's Winter 2007 Risk Index Reflects Slowing Housing Market
http://phx.corporate-ir.net/phoenix.zhtml?c=63356&p=irol-newsArticle&ID=953696&highligh