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.
