PMI Weighs Economic and Market Impacts on Home Price Trajectories

Home prices have gotten a little bit of a boost in recent months thanks to a seasonal uptick in market activity. Most analysts, however, expect further declines to characterize the later part of the year and possibly extend into next year, largely because of the huge supply of foreclosures on the market.

[IMAGE]

Mortgage insurer ""PMI"":http://www.pmi-us.com says there's a 50 to 60 percent chance that home prices at the national level will be lower in March 2013 than they were in March 2011.

Using calculations based on economic conditions such as unemployment rates and local housing market indicators like foreclosure rates, PMI has put a figure on the likelihood that home prices will continue to depreciate over the next two years.

The score on PMI's ""Housing Appreciation Risk Index"":http://www.pmi-us.com/PDF/q2_11_pmi_eret.html (HARI) translates to the probability that house prices will head lower â€" the higher the score, the greater the risk of price decreases.

PMI says declines in foreclosure start rates helped push down risk in many metro areas. The company explained that new foreclosures decreased in the first quarter to 1.17 percent, putting foreclosure starts at their lowest level since the fourth quarter of 2008.

PMI's HARI shows that the metros most likely to see prices continue to fall over the next two years remain concentrated in Nevada, Arizona, Florida, and California. Also high-risk are New Jersey and Rhode Island, which have elevated unemployment rates and low affordability levels.

The metros with the lowest risk of price declines can be found in Iowa, North Dakota, Nebraska, Oklahoma, Texas, Vermont, and Wyoming.

PMI says its analysis revealed a wide spread in index scores between the metros with the highest risk of price depreciation and those with the lowest risk.

Nineteen of the 50 largest MSAs had scores exceeding 70, placing them in the highest risk category. All of Florida's metros posted scores in the 80s or 90s.

Sixteen metros had moderate risk scores between 30 and 50, while nine were deemed low risk with scores between 10 and 30.

PMI says the breadth of the range illustrates that the housing recovery will likely continue to be mixed, with some metropolitan areas recovering more slowly than others.

Metros in the elevated and high-risk categories typically had higher unemployment rates, higher foreclosure rates, lower affordability, and a larger excess housing supply than those in minimal to moderate risk categories.

Price risk scores for all 384 MSAs included in the study are available ""online from PMI"":http://www.pmi-us.com/media/pdf/products_programs/eret/ERET_Appendix_Q2_11.pdf.