PMI Study: Home Prices at High Risk for Future Decline
Saturday, October 04, 2008
PMI Mortgage Insurance Co. released its Fall 2008 U.S. Market Risk Index yesterday, which shows increases in foreclosures and unemployment have significantly heightened the risk of future home price declines. The company's quarterly index ranks the nation's 50 largest metropolitan areas based on the probability that home prices will be lower in two years.
Chances that home prices will continue to decline rose by more than 10 percent in 16 of the 50 metro areas studied, primarily in areas of the country that experienced major increases in house prices during the housing boom. Of the 16 areas ranked in the highest risk category, 13 were in Florida and California. Las Vegas-Paradise, Nevada; Phoenix-Mesa-Scottsdale, Arizona; and Providence-New Bedford-Fall River, Rhode Island, Massachusetts also reached highest-risk status.
“The risk of future home price declines increased in 94 percent of all 381 MSAs [metropolitan statistical areas] in the country this quarter [Q2 2008],” said David Berson, PMI's chief economist and strategist. Berson explained that in many of these areas, risk increased by less than ten percent. But, he added, those states and metropolitan areas where foreclosures and unemployment have risen significantly saw home price risks jump by as much as 30 percent.
The five metro areas with the highest risk of future price declines:
- Fort Lauderdale-Pompano Beach-Deerfield Beach, Florida (99.5 percent)
- Riverside-San Bernardino-Ontario, California (99.5 percent)
- Orlando-Kissimmee, Florida (99.4 percent)
- Miami-Miami Beach-Kendall, Florida (99.3 percent)
- Tampa-St. Petersberg-Clearwater, Florida (99 percent)
The areas with the lowest risk of price declines (less than one percent):
- Fort Worth-Arlington, Texas
- Dallas-Plano-Irving, Texas
- Houston-Sugar Land-Baytown, Texas
- Pittsburgh, Pennsylvania
- San Antonio, Texas
Housing affordability also failed to improve in the second quarter, according to PMI's proprietary Affordability Index, which measures how affordable homes are today, relative to a baseline of 1995. Across the nation, 60 percent of all MSAs experienced declines in affordability. Home prices in these areas will need to fall further in order to move back in line with incomes, PMI said in its report.
In addition, PMI's analysis showed sizable shifts in mortgage origination. According to Berson, homeowners are selecting more government-insured mortgages, representing a shift away from the jumbo, subprime, and Alt-A [near subprime] loans that have led to such an exponential rise in foreclosures. In addition, Berson said borrowers are moving away from adjustable-rate mortgages (ARMs) to fixed-rate mortgages (FRMs). Berson concluded that these shifts appear to be accelerating as we move through 2008.
To view PMI's full Economic and Real Estate Trends report, including the company's home price risk rankings, click here.
Chances that home prices will continue to decline rose by more than 10 percent in 16 of the 50 metro areas studied, primarily in areas of the country that experienced major increases in house prices during the housing boom. Of the 16 areas ranked in the highest risk category, 13 were in Florida and California. Las Vegas-Paradise, Nevada; Phoenix-Mesa-Scottsdale, Arizona; and Providence-New Bedford-Fall River, Rhode Island, Massachusetts also reached highest-risk status.
“The risk of future home price declines increased in 94 percent of all 381 MSAs [metropolitan statistical areas] in the country this quarter [Q2 2008],” said David Berson, PMI's chief economist and strategist. Berson explained that in many of these areas, risk increased by less than ten percent. But, he added, those states and metropolitan areas where foreclosures and unemployment have risen significantly saw home price risks jump by as much as 30 percent.
The five metro areas with the highest risk of future price declines:
- Fort Lauderdale-Pompano Beach-Deerfield Beach, Florida (99.5 percent)
- Riverside-San Bernardino-Ontario, California (99.5 percent)
- Orlando-Kissimmee, Florida (99.4 percent)
- Miami-Miami Beach-Kendall, Florida (99.3 percent)
- Tampa-St. Petersberg-Clearwater, Florida (99 percent)
The areas with the lowest risk of price declines (less than one percent):
- Fort Worth-Arlington, Texas
- Dallas-Plano-Irving, Texas
- Houston-Sugar Land-Baytown, Texas
- Pittsburgh, Pennsylvania
- San Antonio, Texas
Housing affordability also failed to improve in the second quarter, according to PMI's proprietary Affordability Index, which measures how affordable homes are today, relative to a baseline of 1995. Across the nation, 60 percent of all MSAs experienced declines in affordability. Home prices in these areas will need to fall further in order to move back in line with incomes, PMI said in its report.
In addition, PMI's analysis showed sizable shifts in mortgage origination. According to Berson, homeowners are selecting more government-insured mortgages, representing a shift away from the jumbo, subprime, and Alt-A [near subprime] loans that have led to such an exponential rise in foreclosures. In addition, Berson said borrowers are moving away from adjustable-rate mortgages (ARMs) to fixed-rate mortgages (FRMs). Berson concluded that these shifts appear to be accelerating as we move through 2008.
To view PMI's full Economic and Real Estate Trends report, including the company's home price risk rankings, click here.
