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PMI Sees Lower Risk

In one of the first glimmers of hope for the housing sector, a forward-looking analysis of the nation's housing markets concludes that the risk of further home price declines over the next two years is declining in some areas of the country.

That's the "glass half full" view of PMI Mortgage Insurance Co.'s risk index. The analysis also shows that the risk of price declines is increasing in some markets, in large part because homes are becoming more affordable.

PMI's affordability index improved in the fourth quarter. And PMI said that some 300 metropolitan areas saw improvement during the fourth quarter, while only 70 were unchanged or saw a decline.

PMI said that the risk of home prices falling remains prevalent in markets where prices grew "dramatically" before the housing bust, while the risk is mitigating in markets that saw more sustainable home price growth.

Thirteen markets remain in PMI's highest ranking for the likelihood of home price declines over the next two years, with a greater than 60% chance that home prices will be lower two years from now. Risk remains high in many California and Florida markets. Phoenix and Las Vegas also continue to face a significant risk of further price declines.

The metropolitan areas with the highest risk were Riverside, San Bernardino and Ontario, Calif., where PMI estimates there is a 93% chance prices will decline during the next two years; Las Vegas, with a 91% likelihood; and Orlando, Fla., at 85%.

An excess supply of new and existing homes on the market is the primary factor behind the weak forecast for those markets, said David Berson, chief economist for PMI, in a news release.

"Excess supply is responsible for much of the risk we're seeing in the market," Mr. Berson said. On an annualized basis, prices declined 5.1% between the third and fourth quarters, suggesting that the downturn was intensifying as last year came to a close.

PMI estimates that the decline in home prices is about one-third to one-half finished.

But the outlook isn't as grim in most of the country. In part, that's because housing affordability improved in the fourth quarter, according to PMI.

In a PMI newsletter, Mr. Berson said that policy changes, including the Fed's rate cuts, easing of capital and portfolio limitations on the government-sponsored enterprises, and other moves have helped ease the housing crisis. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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