PMI Study Sees Widespread Risk of Price Declines

Forty-eight of the 50 biggest metropolitan areas in the nation show signs of increasing risk for a decline in home prices, according to an analysis done by PMI Mortgage Insurance Co.

However, PMI says that because of the strength of the national economy, the formerly red-hot housing market will cool down slowly rather than go into a bust, absent any major economic shocks.

PMI's spring U.S. market risk index found that home price growth has slowed in nearly half of the metropolitan areas compared to the previous quarter.

The main cause of a higher risk for price declines is low affordability. With interest rates creeping up, the number of markets where affordability is stretched at today's housing prices has increased dramatically, PMI said.

According to PMI, 14 of the top 50 metropolitan areas face a 50% or greater risk of a home price decline, up from 11 last quarter.

Mark Milner, chief risk officer at PMI, said the biggest change affecting the risk of a price decline was affordability, with continued increases in home prices and higher interest rates making it more of a challenge for people to assemble the financing needed to purchase a home at today's prices. Affordability has decreased in all 50 of the largest metropolitan areas for the most recent quarter, PMI said. And eight markets have affordability levels that suggest vulnerability to economic shock, up from just two last quarter.

"The risk of price declines has increased somewhat, but the national and local economies remain strong, which should support a gradual return to an economic climate characterized by slow, steady appreciation," Mr. Milner said in a news release.

Metropolitan areas that saw a significant increase in the risk for home price declines included Minneapolis, Virginia Beach, Baltimore, Newark, New York and Washington.

While appreciation has slowed, Phoenix, Orlando, Fort Lauderdale, Miami, Tampa, Washington, Virginia Beach and Los Angeles all saw year-over-year appreciation in excess of 20%.

The five markets deemed least at risk for a price decline are San Antonio, Cincinnati, Indianapolis, Memphis and Pittsburgh.

SNAPSHOT: Areas Most at Risk Of Home Price Drop

1. San Diego-Carlsbad-San Marcos, CA

2. Santa Ana-Anaheim-Irvine, CA

3. Boston-Quincy, MA

4. Nassau-Suffolk, NY

5. Riverside-San Bernardino, CA


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