Dear Clients & Friends,

The Strand™ Index is based on methodology that measures changes in supply and demand in the real estate market. Historically, urban Seattle tends to reflect higher demand and lower supply conditions than much of the rest of the Puget Sound housing market, but also tends to be a bit more volatile.

The graphs and tables below depict changes in the urban Seattle, single family housing market between 1983 and 1996. From the standpoint of using the Strand™ Index to manage collateral risk for investors in the secondary mortgage market, please note that the highest peak below is reflective of a period of hyper-volatility, relative to nearly ten years of market activity.... this is the peak in the long-term housing market cycle. Note that each major metropolitan market will exhibit its own, unique, long and short-term cycles.

Mortgage loans written during the eight weeks prior, and twelve weeks following the highest peak below, had the highest probability of causing losses due to foreclosure and/or litigation, than almost any other loan transactions written during the course of a ten year period. The period of risk for investors extends for about five years period following the peak.

If your firm originated loans during this period of hyper-volatility, or purchased a loan portfolio that included transactions written during this period, you can cross check your own loss data to identify whether your losses correspond to the deals written during the period of high-risk as identified by the Strand™ Index.

Note that the graphs below examine the urban Seattle housing market over a period of time. However, in addition to the periods of hyper-volatility described above, we can examine sub-markets within the larger area to determine relative risk of virtually any market segment at any given point in time. You can examine several examples of this in Strand letters S-101, S-104, S-105, and S-108

More on my perspective on long and short-term housing market cycles can be found elsewhere on this site in the Housing Update Letters section.

Regards,

Robert E. Rothstein