From the PMI Group:
Continued deceleration in home price appreciation and decreased affordability caused the risk of home price declines to rise in cities across the country, PMI Mortgage Insurance Co., the U.S. subsidiary of The PMI Group, Inc. (NYSE: PMI) reported today. Economic fundamentals remain strong in most areas, however, with historically low unemployment rates and strong job growth, which helps mitigate the risk of price declines.
“Years of rapid appreciation have made homes less affordable in many areas, and that’s not sustainable over the long term, so what we are seeing is not unexpected,” said Mark F. Milner, Chief Risk Officer of PMI Mortgage Insurance Co. “Over time, moderating appreciation will bring prices back in line with economic fundamentals, particularly incomes, bringing the market back to a healthy balance.”
PMI U.S. Market Risk Index(SM) scores increased for 34 of the nation’s 50 largest metropolitan statistical areas (MSAs), resulting in an increase in the average score from 328 to 342, which translates into a 34.2 percent chance that home prices will decline in two years. Nineteen MSAs face a greater than 50 percent chance that home prices will decline, up from 18 last quarter.
While year-over-year appreciation remained in the double digits in 14 of the 50 largest MSAs, the rate of appreciation slowed in 43. Three MSAs-Detroit and neighboring Warren, MI, and Cambridge, MA-saw slight year over year price declines.
The risk of price declines continues to be concentrated in California and along the Eastern Seaboard. Of the 19 MSAs facing a greater than 50 percent chance of a price decline, eight are located in California, eight are in the Northeast, and two are in Florida.