Risk of Home Price Declines Increases Slightly, According to PMI Mortgage Insurance Co.'s Fall Market Risk Index; New Valuation Index Shows Home Prices are Overvalued by 10% or More in Half of Large MSAs

Business Wire, Oct 18, 2005

WALNUT CREEK, Calif. -- A number of the nation's largest housing markets remain at risk of price declines, according to the PMI U.S. Market Risk Index, issued today, and prices in many markets are overvalued. The median Risk Index value increased 11.6 percent, from 120 to 134. Topping the Risk Index list with a greater than 50 percent chance of experiencing price declines are Boston, MA, San Diego, CA, Long Island (Nassau-Suffolk), NY, Santa Ana, CA, and Oakland, CA. Nationwide, there exists a 21.8 percent probability of an overall house price decline, as measured within the next two years and across the 50 largest housing markets, up slightly from 21.3 percent last quarter. At the top of the valuation index, a new feature this quarter, were Los Angeles, where home prices are estimated to be overvalued by 33.7%, Sacramento, by 31.3%, and Riverside, by 30.7%. The Fall report is based on second quarter data, so excludes the impact of Hurricanes Katrina and Rita.

"House prices are sticky, so moving to another phase in the real estate cycle can be a slow process," explained Mark Milner, chief risk officer with PMI Mortgage Insurance Co. "But we believe that over the medium to long term, prices will move into better alignment with local economic factors, in particular income." Marco van Akkeren, an economist with PMI Mortgage Insurance Co., explained, "In the riskier markets affordability has weakened over the past several quarters as house price appreciation diverged from economic fundamentals. With this quarter's report we are seeing a continuation of that trend."

The PMI US Market Risk Index is published quarterly by PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE:PMI) as part of its Economic and Real Estate Trends (ERET) report. The Risk Index indicates the probability that home prices will decline in two years. The new Valuation Index indicates whether prices are over- or undervalued compared to their long-term trend, and by how much.

The Valuation Index found that half of the nation's 50 largest housing markets are overvalued by 10 percent or more. Three are overvalued by 30 percent or more and another eleven are overvalued by 20 percent or more. Eleven markets are undervalued. Van Akkeren explained, "This is another way of looking at the markets, and the results reveal a strong association between PMI's Market Risk Index values and deviations from long-term home-price trends, shown in the Valuation Index. Taking a historical view, we also see that markets are more overvalued today than they were in the past."

PMI US Market Risk Index and PMI Valuation Index, by MSA

                                                      Risk   Valuation
MSA                                                  Index     Index
---                                                  -----   ---------
Boston-Quincy, MA                                      551       8.8%
San Diego-Carlsbad-San Marcos, CA                      536      22.2%
Nassau-Suffolk, NY                                     532      20.4%
Santa Ana-Anaheim-Irvine, CA                           522      25.5%
Oakland-Fremont-Hayward, CA                            502      26.5%
San Jose-Sunnyvale-Santa Clara, CA                     472      26.5%
Riverside-San Bernardino-Ontario, CA                   466      30.7%
Providence-New Bedford-Fall River, RI-MA               464      19.1%
Los Angeles-Long Beach-Glendale, CA                    460      33.7%
Sacramento-Arden-Arcade-Roseville, CA                  456      31.3%
Cambridge-Newton-Framingham, MA                        451       8.5%
San Francisco-San Mateo-Redwood, CA                    440      19.5%
Edison, NJ                                             362      27.4%
New York-Wayne-White Plains, NY-NJ                     332      16.3%
Detroit-Livonia-Dearborn, MI                           328     -10.3%
Fort Lauderdale-Pompano Beach-Deerfield Beach, FL      288      19.6%
Washington-Arlington-Alexandria, DC-MD-VA-WV           236      18.2%
Minneapolis-St Paul-Bloomington, MN-WI                 233       4.5%
Newark-Union, NJ-PA                                    232      25.6%
Average                                                218
Miami-Miami Beach-Kendall, FL                          206      20.5%
Tampa-St Petersburg-Clearwater, FL                     201      23.2%
Las Vegas-Paradise, NV                                 197      25.5%
Warren-Farmington Hills-Troy, MI                       165      -2.3%
Denver-Aurora, CO                                      150      -4.2%
Baltimore-Towson, MD                                   135      18.2%
Virginia Beach-Norfolk-Newport News, VA-NC             133      18.5%
Orlando, FL                                            111      19.6%
Chicago-Naperville-Joliet, IL                          104       8.6%
Atlanta-Sandy Springs-Marietta, GA                     102       5.6%
Portland-Vancouver-Beaverton, OR-WA                     96       8.6%
Phoenix-Mesa-Scottsdale, AZ                             93      22.0%
Austin-Round Rock, TX                                   91       7.4%
Kansas City, MO-KS                                      88       0.9%
St Louis, MO-IL                                         85       5.2%
Seattle-Bellevue-Everett, WA                            84      10.6%
Dallas-Plano-Irving, TX                                 81      10.5%
Charlotte-Gastonia-Concord, NC-SC                       77      -1.0%
Houston-Baytown-Sugarland, TX                           77       7.5%
Philadelphia, PA                                        74      15.6%
Milwaukee-Waukesha-West Allis, WI                       70       0.9%
Fort Worth-Arlington, TX                                69       6.5%
New Orleans-Metairie-Kenner, LA                         67      -0.6%
Cleveland-Elyria-Mentor, OH                             64      -6.9%
Nashville-Davidson-Murfreesboro, TN                     63      -1.4%
San Antonio, TX                                         62       6.0%
Columbus, OH                                            61      -3.2%
Cincinnati-Middletown, OH-KY-IN                         58      -3.4%
Memphis, TN-MS-AR                                       58      -1.7%
Indianapolis, IN                                        55      -1.9%
Pittsburgh, PA                                          54       0.2%