PMI Predicts Widespread Home Price Depreciation Through 2010

""PMI Mortgage Insurance Co."":http://www.pmi-us.com, a California-based provider of residential mortgage insurance and credit enhancement products to expand homeownership, released its first quarter 2009 ""Economic and Real Estate Trends Report"":http://www.pmi-us.com/media/pdf/products_services/eret/pmi_eret09v2.pdf and ""U.S. Market Risk Index"":http://www.pmi-us.com/media/pdf/products_services/eret/pmi_eretappndx_09v2.pdf on Wednesday. The report projects that the U.S. recession will continue to depress housing prices nationally through the end of 2010.
According to PMI's study, as many as 374 of the nation’s 381 metropolitan statistical areas (MSAs) - or 98 percent - are now facing increased risk of lower home prices by the end of 2010. However, PMI noted that 212 of the nation’s MSAs still have a minimal-to-low risk of depressed prices in two years.
The PMI report also indicates that 21 of the nation’s 50 largest MSAs are now in the highest risk category - a position that represents the highest probability of lower home values by the end of 2010, relative to the end of 2008. Over the past several quarters, PMI said its analysts have seen risk rising fastest in large urban centers, while local housing markets of smaller MSAs have faired relatively better in both current and projected price performance.
PMI’s U.S. Market Risk Index ranks the nation’s 50 largest MSAs according to the likelihood that home prices will be lower in two years. The Risk Index uses economic, housing, and mortgage market factors (home price appreciation, employment, affordability, excess housing supply, interest rates, and foreclosure activity) to determine these probabilities.
Using this methodology, PMI said the 10 riskiest MSAs, not surprisingly, were primarily in Florida and California. They are (with No. 1 in the list below being the most at-risk for home price depreciation):
  1. Miami-Miami Beach-Kendall, FL
  2. Riverside-San Bernardino-Ontario, CA
  3. Ft. Lauderdale-Pompano Beach-Deerfield Beach, FL 
  4. Los Angeles-Long Beach-Glendale, CA
  5. Las Vegas-Paradise, NV
  6. Tampa-St. Petersburg-Clearwater, FL
  7. Orlando-Kissimmee, FL
  8. Santa Ana-Anaheim-Irvine, CA
  9. Jacksonville, FL
10. Phoenix-Mesa-Scottsdale, AZ
The 10 most stable MSAs in terms of price depreciation (with No. 1 being the most stable) are:
  1. Pittsburgh, PA
  2. Cleveland-Elyria-Mentor, OH
  3. Columbus, OH 
  4. Dallas-Plano-Irving, TX
  5. Fort Worth-Arlington, TX
  6. Houston-Sugar Land-Baytown, TX
  7. Memphis, TN-MS-AR
  8. San Antonio, TX
  9. Charlotte-Gastonia-Concord, NC-SC
10. Indianapolis-Carmel, IN
David Berson, PMI’s chief economist and strategist, explained, ""As the recession deepened during the fourth quarter of 2008, increasing rates of unemployment and foreclosures continued to place downward pressure on house price appreciation. Combined with upward movements in excess housing supply in many parts of the country, these deteriorating conditions are increasing risk of house price declines in the next two years.""
PMI's report also noted that affordability has improved in many MSAs - as housing prices continued to decline and mortgage rates fell. For all 381 MSAs, the weighted average Affordability Index reading was 120.6 in the fourth quarter of 2008, compared to a third quarter reading of 114.5. (An Affordability Index score exceeding 100 indicates that homes have become more affordable; a score below 100 means they are less affordable.)
PMI pointed out that affordability jumped significantly in the 106 MSAs ranked in the two highest risk categories. Average affordability for these two groups improved from 99.6 to 107.4 - a greater rate of improvement than the rest of the nation.
To view PMI's Economic and Real Estate Trends (ERET) report for Q1 2009, as well as the company's market data for all 381 U.S. MSAs, ""click here"":http://www.pmi-us.com/media/pdf/products_services/eret/pmi_eret09v2.pdf.