Soft Landing Likely, Despite Greater Risk of Price Declines Shown by PMI Mortgage Insurance Co.'s Winter U.S. Market Risk Index; Many Markets See Slower Home Price Appreciation but Economy Remains Strong

Business Wire, Jan 17, 2006

WALNUT CREEK, Calif. -- According to the PMI U.S. Market Risk Index, issued today, home price appreciation slowed in 32 of the nation's 50 largest housing markets, and many markets face an increased chance of price declines. The continued strength of the economy, however, bodes well for a "soft landing" of the nation's housing market, according to Mark Milner, Chief Risk Officer of PMI Mortgage Insurance Co.

The median Risk Index value increased 25 percent, from 134 to 168, and there are now 11 markets with a greater than 50 percent chance of experiencing price declines, up from 5 last quarter. In the 50-percent bracket, San Diego, CA, now tops the list with a 58.8 percent chance of price declines, followed by Santa Ana, CA, Boston, MA, Long Island (Nassau-Suffolk), NY, Oakland, CA, Sacramento, CA, Riverside, CA, Providence, RI, Los Angeles, CA, San Jose, CA, and San Francisco, CA. Nationwide, there exists a 26.1 percent probability of an overall house price decline, as measured within the next two years and across the 50 largest housing markets, up from 21.8 percent last quarter.

"We expected what we are seeing in the third quarter data, which is a moderating of appreciation that, over time, is likely to bring prices back into line with the economic fundamentals that support them, particularly incomes," said Milner. PMI expects this slowing to continue, he added, because appreciation in many markets is still in the double-digits, which is high by historical standards (a rate of four to six percent annually is considered normal in the United States). Milner believes that a continued gradual slowing of appreciation will contribute to a soft landing, provided that the U.S. and regional economies remain robust (unharmed by economic shocks, unforeseen events, or an adverse change in consumer sentiment).

"We knew the kind of appreciation we had been seeing in some markets was not sustainable over the long term," Milner continued. "This means that we'll all need to earn our equity the old-fashioned way -- by paying our mortgages down over time and by relying on slower but steady appreciation. In this more normal environment of slower appreciation and higher interest rates, it's a good time for consumers to consider the risks they can control, namely the type of mortgage they have. It may pay to limit interest rate and payment shock risk by locking in a fixed rate or a substantial fixed-rate period on a fully amortizing loan. If the borrower has limited funds for a down payment, mortgage insurance should be considered."

PMI US Market Risk Index, by MSA

                             Risk                                Risk
MSA                         Index  MSA                          Index
--------------------------- ------ ---------------------------- ------
San Diego-Carlsbad-San             New Orleans-Metairie-Kenner,
 Marcos, CA                   588   LA                            156
Santa Ana-Anaheim-Irvine,
 CA                           579  Denver-Aurora, CO              155
                                   Chicago-Naperville-Joliet,
Boston-Quincy, MA             573   IL                            148
Nassau-Suffolk, NY            573  Orlando, FL                    137
Oakland-Fremont-Hayward, CA   558  Phoenix-Mesa-Scottsdale, AZ    118
Sacramento-Arden-Arcade-           Atlanta-Sandy Springs-
 Roseville, CA                554   Marietta, GA                  114
Riverside-San Bernardino-
 Ontario, CA                  553  Seattle-Bellevue-Everett, WA   103
Providence-New Bedford-Fall        Portland-Vancouver-
 River, RI-MA                 550   Beaverton, OR-WA              102
Los Angeles-Long Beach-
 Glendale, CA                 533  Philadelphia, PA                98
San Jose-Sunnyvale-Santa
 Clara, CA                    530  St Louis, MO-IL                 91
San Francisco-San Mateo-
 Redwood City, CA             507  Kansas City, MO-KS              89
Cambridge-Newton-
 Framingham, MA               497  Austin-Round Rock, TX           85
                                   Milwaukee-Waukesha-West
Edison, NJ                    473   Allis, WI                      82
New York-Wayne-White               Charlotte-Gastonia-Concord,
 Plains, NY-NJ                447   NC-SC                          79
                                   Houston-Baytown-Sugarland,
Las Vegas-Paradise, NV        418   TX                             77
Fort Lauderdale-Pompano
 Beach-Deerfield Beach, FL    378  Dallas-Plano-Irving, TX         77
Newark-Union, NJ-PA           365  Fort Worth-Arlington, TX        69
Washington-Arlington-
 Alexandria, DC-MD-VA-WV      345  Cleveland-Elyria-Mentor, OH     67
Detroit-Livonia-Dearborn MI   324  San Antonio, TX                 64
Miami-Miami Beach-Kendall,
 FL                           303  Columbus, OH                    64
                                   Nashville-Davidson-
Average                       261   Murfreesboro, TN               62
Minneapolis-St Paul-               Cincinnati-Middletown, OH-
 Bloomington, MN-WI           260   KY-IN                          61
Tampa-St Petersburg-
 Clearwater, FL               259  Indianapolis, IN                58
Baltimore-Towson, MD          217  Memphis, TN-MS-AR               57
Virginia Beach-Norfolk-
 Newport News, VA-NC          209  Pittsburgh, PA                  56
Warren-Farmington Hills-
 Troy, MI                     181