Markets see slower home price appreciation, this winterMortgagePress.comHome price appreciation According to the PMI Economic and Real Estate Trends Report and U.S. Market Risk Index published by PMI Mortgage Insurance Company, home price appreciation has slowed this winter in 32 of the nation's 50 largest housing markets, and many markets face an increased chance of price declines. The continued strength of the economy, however, bodes well for a soft landing of the nation's housing market, according to Mark Milner, chief risk officer of PMI. The median risk index value increased 25 percent, from 134 to 168, and there are now 11 markets with a greater than 50 percent chance of experiencing price declines, up from five last quarter. In the 50 percent bracket, San Diego now tops the list with a 58.8 percent chance of price declines, followed by Santa Ana, Calif.; Boston; Long Island (Nassau and Suffolk counties), N.Y.; Oakland, Calif.; Sacramento, Calif.; Riverside, Calif.; Providence; Los Angeles; San Jose, Calif.; and San Francisco. Nationwide, there exists a 26.1 percent probability of an overall house price decline as measured within the next two years and across the 50 largest housing markets, up from 21.8 percent last quarter. "We expected what we are seeing in the third quarter data, which is a moderating of appreciation that, over time, is likely to bring prices back into line with the economic fundamentals that support them, particularly incomes," said Milner. PMI expects this slowing to continue, he added, because appreciation in many markets is still in the double digits, which is high by historical standards (a rate of four to six percent annually is considered normal in the United States). Milner believes that a continued gradual slowing of appreciation will contribute to a soft landing, provided that the U.S. and regional economies remain robust (unharmed by economic shocks, unforeseen events or an adverse change in consumer sentiment). "We knew the kind of appreciation we had been seeing in some markets was not sustainable over the long term," Milner continued. "This means that we'll all need to earn our equity the old-fashioned way—by paying our mortgages down over time and by relying on slower but steady appreciation. In this more normal environment of slower appreciation and higher interest rates, it's a good time for consumers to consider the risks they can control, namely the type of mortgage they have. It may pay to limit interest rate and payment shock risk by locking in a fixed rate or a substantial fixed rate period on a fully amortizing loan. If the borrower has limited funds for a down payment, mortgage insurance should be considered." Market risk index trends include the following: • Nineteen of the top 20 metropolitan statistical areas saw increases in their risk index scores. The exception is Detroit, whose score fell four points; • San Diego has jumped to first place, followed by Santa Ana, Calif. and Boston, pushing Long Island, N.Y. (Nassau and Suffolk counties) out of the top three; • Las Vegas experienced the biggest change in risk index score since last quarter, gaining 221 points for a score of 418—up from 197 last quarter—and rising seven positions in the index; • Newark, N.J.; New York; Edison, N.J.; and Washington, D.C. also saw gains of more than 100 points in their risk index scores; • Because third quarter data reflects the initial impact of hurricanes Katrina and Rita, New Orleans saw the biggest jump in position, rising 16 spots on the risk index to number 26; • Two areas—Riverside, Calif. and Fort Lauderdale, Fla.—have seen their affordability index scores drop below PMI's benchmark threshold of 70. Six more (San Diego, Santa Ana, Calif.; Oakland, Calif.; Sacramento, Calif.; Los Angeles; and Miami) have affordability index scores between 70 and 75; and • The five least risky areas are Nashville, Cincinnati, Indianapolis and Memphis, with Pittsburgh last on the list with a score of 56, up two points from last quarter. For more information, visit www.pmigroup.com.