Community Stabilization Index
Methodology1 and Applications
Prepared by the Community Development Department
Please send questions or comments to communitydevelopment@clev.frb.org
The Community Stabilization Index (CSI) is a composite index that aims to provide community leaders with a relative measure of local housing market conditions, with a particular focus on recovery potential. The index is specific to conditions at the zip code level, and is comparable across all zip codes within a county or larger geographic area. Another helpful feature of the CSI is that periodic recalculations allow leaders to track relative changes in housing market conditions through time at the zip code level.
The CSI synthesizes several variables into a single comparable measure of recovery potential. However beneficial, this simplification should not deemphasize the importance of tracking underlying and other available housing variables, nor preclude understanding the limitations of this tool.
Data sources
The index draws data from Lender Processing Services, Inc. Applied Analytics (LPS). The data include loan-level servicing data for both securitized loans and loans held in portfolio from the top 10 residential mortgage servicers in the nation and others, covering about 65% of the US mortgage market. Smaller servicers have less representation.
Components
The index is comprised of five components calculated for each zip code:
- REO: This component represents the number of loans in Real Estate Owned (REO) status, divided by the total number of loans in the LPS data set, for a given month. Only first-lien loans on residential properties are included in the analysis.
- Loans in 90-day delinquency: This component represents the number of loans that are at least 90 days delinquent, divided by the total number of loans in the LPS data set, for a given month. Only first-lien loans on residential properties are included in the analysis.
- Loans in foreclosure: This component represents the number of loans that are in foreclosure status, divided by the total number of loans in the LPS data set, for a given month. Only first-lien loans on residential properties are included in the analysis.
- Change in median home value: For this component, we calculate the median estimated value of homes in the zip code for two time periods: 2005, the year prices peaked, and 2010. (In the case of a purchase, the value refers to the sales price. If the loan is originated due to a refinance, the value refers to the appraisal amount.) The index tracks the percent change of these median values. The data are from LPS. Only first-lien loans on residential properties originated in 2005 and 2010 are included in the analysis.
- New-originations-to-REO ratio: This component represents the number of originations in a given quarter divided by the number of loans in REO status in a given month. New originations and loans in REO are from the LPS data. Only first lien loans on residential properties are included in the analysis.
For each zip code, all components are normalized to a scale of zero to one based on the zip codes’ relative level of distress with respect to other zip codes in the county or larger geographic area. Thus, for each of the components, the most distressed zip code—say, the one with the highest foreclosure rate—is assigned a value of one, and the least distressed is assigned a value of zero. The composite index, a simple average of its components, is also normalized to a zero-to-one scale. A higher score on the index indicates a more distressed housing market with fewer signs of recovery.
Interpretation
In general, greater potential for the local housing market and neighborhoods to recover may be observed via:
- A decreasing influx of properties entering the high delinquency, foreclosure and REO processes and an increasing outflow of properties from foreclosure/REO back into the market or into the hands of local institutions, such as land banks.
- Consumers’ positive expectations of stability in the area as signaled by lower depreciation of home prices and higher level of new mortgage originations relative to the number of properties that are vacant and in REO status.
Components 1-3 of the index relate to the inflow-outflow perspective of recovery, while components 4 and 5 relate to the positive expectations interpretation of recovery potential. Overall, the composite index aims to reflect the health of the overall housing market across zip codes, given the high negative impact due to the mortgage foreclosures crisis.
Maps
Following is a series of maps that, for each county, depict the weighted index components individually and then as a composite stabilization index.
Allegheny County, Pennsylvania
1 Adapted version of the Real Estate Owned (REO) Stabilization Opportunity Score (SOS) developed by Kai-Yan Lee at the Federal Reserve Bank of Boston. An earlier version of this index was posted to our site in 2009. This 2011 version makes use of newly acquired data and revises the methodology.