...Framework: Fitch Ratings' Sustainable Home Price (SHP) model is a countercyclical approach designed to produce an equilibrium home price estimate (sustainable value) driven by macroeconomic fundamentals. The agency's objective is to measure the extent to which real home prices deviate from sustainable values. The model produces sustainable market value declines (sMVD) that are used by Fitch to adjust property values and borrower equity ratios in its U.S. RMBS Loan Loss Model. Sustainable Value Concept: Underlying Fitch's SHP model is the theoretical principle that, over the long term, home prices revert to equilibrium or sustainable values based on fundamental supply and demand conditions. Using a custom weighted least squares (WLS) regression model, sustainable home prices are estimated for each metropolitan statistical area (MSA) as a function of five explanatory variables, including per capita income, rents, household growth, unemployment and mortgage rates. Dynamic Weighting of Data...
