California and Florida Top Metro Depreciation Risk Ranking

Walnut Creek, CA-In the country's largest metropolitan areas there is a 34.6% chance "that prices will be lower in two years," with Florida and California being higher risk, according to the Summer 2007 U.S. Market Risk Index released by PMI Mortgage Insurance Co. here, a subsidiary of The PMI Group Inc.

The average score based on population was at 346, PMI said, as suggested by the index, which ranks the nation's 50 largest metropolitan statistical areas based on the likelihood home prices in these markets will drop in the next two years.

Chief risk officer of PMI Mortgage Insurance Co., Mark F. Milner, introduced another version of the index.

"Our new model gives more weight to the recent volatility of an area's price movements and is better suited for the vastly different market we are in today. Our prior model, in contrast, was tuned to the rapidly appreciating market we were in from 2002 to 2006."

The new and enhanced or updated index on the other hand considers "an area's recent price volatility." Currently it shows "a shift in risk toward Florida and California, as well as certain areas of the Southwest."

The enhanced index introduces risk ranks, a feature that groups together areas with consistently similar characteristics. This year, at 60% or greater chance "that home prices will be lower in two years," the index shows the following areas will be affected: Riverside, Calif., Phoenix, Las Vegas and West Palm Beach, Fla.

The lowest risk metropolitan areas with less than 10% chance of seeing lower housing prices going forward are in the states of Texas, Ohio, Indiana and Pennsylvania.

"What the markets with the greatest risk of decline have in common is a history of price volatility, rapidly rising rates of price appreciation above the long-term average followed by a recent sharp slowdown in the rate of appreciation," Mr. Milner said. "Markets with a history of volatility are more likely to see price declines in the future. MSAs with a history of low to moderate rates of volatility in house appreciation have a lower risk of price declines."

The index shows five of the 11 metropolitan areas facing a greater than 50% chance of a price decline are in California (Los Angeles, San Diego, Sacramento, Santa Ana and Oakland), four are in Florida (Miami, Orlando, Fort Lauderdale and Tampa), and the remaining two are Boston and Washington, D.C.

In addition, quoting data from the Office of Federal Housing Enterprise Oversight, PMI reported, "The rate of price appreciation slowed in all but five of the 50 largest MSAs." Only five of these areas saw appreciation in the double digits in the first quarter of 2007, down from 26 in the first quarter of 2006.

The index shows, however, in most areas "the risk of price declines continues to be balanced by strong economic fundamentals, including low unemployment."

The data, according to Mr. Milner, do not mean it is a bad time to buy or own a house, rather it is "a reminder that homeownership is a long-term investment. For buyers it is a much friendlier market than it was even a year ago," if one chooses the right mortgage loan.

PMI Summer 2007 - U.S. Market Index

Rank MSA Core

Riverside-San Bernardino-Ontario, CA 652

Phoenix-Mesa-Scottsdale, AZ 646

Las Vegas-Paradise, NV 614

West Palm Beach-Boca Raton-Boynton Beach, FL 607

Source: Summer 2007 PMI Economic and Real Estate Trends Report.

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