The risk of future price declines rose by more than 10 percent in 16 of the nation's top 50 MSAs, primarily in areas of the country that experienced major increases in house prices during the housing boom. Only two MSAs - Cambridge-Newton-Framingham, MA and Boston-Quincy, MA - saw their risk decrease by more than one percent. Among the top 50 MSAs, 17 ranked in the highest risk category and 16 of those were in California, Florida, Nevada, and Arizona.
"The risk of future home price declines increased in 94 percent of all 381 MSAs in the country this quarter," said David Berson, PMI's Chief Economist and Strategist. "The majority of these increases aren't statistically significant, in many cases risk increased by less than ten percent, but risk did increase by a significant amount - as much as 30 percent or more - in some states and MSAs where foreclosures and unemployment increased significantly."
The highest risk of future price declines remains in Fort Lauderdale-Pompano Beach-Deerfield Beach, FL (99.5 percent), Riverside-San Bernardino-Ontario, CA (99.5 percent), Orlando-Kissimmee, FL (99.4 percent), Miami-Miami Beach-Kendall, FL (99.3 percent), Tampa-St. Petersberg-Clearwater, FL (99 percent). The areas with the lowest risk of price declines - less than one percent - are in Fort Worth-Arlington, TX, Dallas-Plano-Irving, TX, Houston-Sugar Land-Baytown, TX and Pittsburgh, PA.
Housing affordability also failed to improve this quarter, according to PMI's proprietary Affordability Index(SM), which measures how affordable homes are today in a given MSA relative to a baseline of 1995. An Affordability Index score exceeding 100 indicates that homes have become more affordable while a score below 100 means they are less affordable.
Across the nation, 40 percent of the nation's 381 MSAs showed increased affordability; while 60 percent of all MSAs experienced declines in affordability. Affordability remains challenged in 14 of the 17 MSAs with risk scores in the highest risk ranks. Home prices in these areas will need to fall further in order to move back in line with incomes before there will be meaningful reductions in risk scores.
In addition to the PMI U.S. Market Risk Index showing the risk of price declines, PMI's Fall 2008 ERET examines major changes in the mortgage origination trends as well as the impact foreclosures and unemployment are having on home prices in the second quarter of 2008.
