PMI Mortgage Insurance Co. released its Summer 2008 U.S. Market Risk Index(SM), which ranks the nation's 50 largest metropolitan statistical areas (MSAs) according to the likelihood that home prices will be lower in two years.


The U.S. Market Risk Index shows risk further diverged along two distinctly different paths during the first quarter of 2008, continuing a trend that began in the fourth quarter of 2007. In general, risk continued to intensify in many of the MSAs where home price growth had significantly exceeded historical norms during the housing boom, but continued to decline in many other areas across the country.

The highest risk of future price declines remains in Riverside-San Bernardino-Ontario, CA (95.5), followed by Fort Lauderdale-Pompano Beach-Deerfield Beach, FL (92.2), and West Palm Beach-Boca Raton-Boynton Beach, FL (91.9). The areas with the lowest risk of price declines are in Fort Worth-Arlington, TX, Dallas-Plano-Irving, TX, and Pittsburgh, PA, each at less than a 1 percent chance.

The risk of lower prices in two years declined in 35 of the nation's 50 largest MSAs, and among all 381 MSAs, 326 experienced a decline in risk. Among the top 50 MSAs, 16 ranked in the two highest risk categories, and among those, 15 were in California, Florida, Nevada, and Arizona. Risk of lower prices in two years is greater than 50 percent in all of these MSAs.

Risk scores translate directly into an estimated percentage risk that home prices will be lower in two years. The Summer 2008 Risk Index is based on first-quarter Office of Federal Housing Enterprise Oversight (OFHEO) data.

"Compared with a year earlier, there has been a significant increase in the number of existing single-family homes for sale relative to the number of buyers, even beyond the normal increase in the spring home sales season. April's ratio is the highest since 1985," said David Berson, PMI's Chief Economist and Strategist. "Given the magnitude of the inventory overhang, we expect national home price declines to continue into at least 2009."

Housing affordability continued to improve during the first 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, 69.3 percent of the nation's 381 MSAs showed increased affordability; while 30.7 percent of all MSAs experienced declines in affordability. Affordability remains challenged in the 17 MSAs with risk scores in the two 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.