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.WALNUT CREEK Walnut Creek, residential city (1990 pop. 60,569), Contra Costa co., W Calif., in the San Francisco Bay area; inc. 1914. It is the trade and shipping center of an extensive agricultural area where walnuts are among the major product. , Calif. -- A number of the nation's largest housing markets remain at risk of price declines, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the PMI See Private Mortgage Insurance. U.S. Market Risk Index, issued today, and prices in many markets are overvalued Overvalued A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a . 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 San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. , CA, Long Island (Nassau-Suffolk), NY, Santa Ana Santa Ana, city, El Salvador Santa Ana (sän'tä ä`nä), city (1993 pop. 129,873), W El Salvador. It is the second largest city in the country and the commercial and processing center for a sugarcane, coffee, and cattle region. , 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 Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. , 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 The PMI Group (NYSE: PMI) is a provider of credit enhancement products that promote homeownership and the provision of services essential to the building of strong communities. , Inc. (NYSE NYSE See: New York Stock Exchange :PMI) as part of its Economic and Real Estate Trends (ERET ERET Efficient and Renewable Energy Technologies ) 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 Undervalued A stock or other security that is trading below its true value. Notes: The difficulty is knowing what the "true" value actually is. Analysts will usually recommend an undervalued stock with a strong buy rating. 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%
Market Risk Index trends include: --Boston, MA, San Diego, CA, and Long Island (Nassau-Suffolk), NY continue to top the Market Risk Index with scores of 551, 536, and 532, respectively, although San Diego has jumped over Long Island to second place. --The MSAs that experienced the biggest change in Market Risk Index score since last quarter are Fort Lauderdale Fort Lauderdale (lô`dərdāl), residential, commercial, and resort city (1990 pop. 149,377), seat of Broward co., SE Fla., on the Atlantic coast; settled around a fort built (c.1837) in the Seminole War, inc. 1911. , FL and Las Vegas Las Vegas (läs vā`gəs), city (1990 pop. 258,295), seat of Clark co., S Nev.; inc. 1911. It is the largest city in Nevada and the center of one of the fastest-growing urban areas in the United States. , NV. Fort Lauderdale's score increased 69 points to 288, moving it from the 18th spot to the 16th; Las Vegas also moved up two spots, from 24th to 22nd, as its score increased 67 points to 201. --Other big gainers were in California and Florida. In Florida, Miami added 40 points for a score of 206, while Tampa gained 35 points, taking it to 201. In California, Riverside increased 44 points to 466, Los Angeles was up 39 points to 460, and Sacramento gained 37 points for a score of 456. San Jose San Jose, city, United States San Jose (sănəzā`, săn hōzā`), city (1990 pop. 782,248), seat of Santa Clara co., W central Calif.; founded 1777, inc. 1850. , CA, made the biggest move in the other direction, dropping 41 points to 472, below the 50% mark and out of the top five. --The five least risky areas are Columbus, OH, Cincinnati, OH, Memphis, TN, Indianapolis, IN, with Pittsburgh, PA last on the list with a score of 54, down a point from last quarter. Findings of PMI's new Valuation index include: --Of the 14 markets overvalued by 20% or more, seven are in California (Los Angeles, Sacramento, Riverside, San Diego, Santa Ana, Oakland, and San Jose), three are in the Northeast (Edison, NJ, Newark, NJ, and Nassau-Suffolk, NY), and two are in Florida (Tampa and Miami). The other two are Las Vegas, NV and Phoenix, AZ. --Detroit, MI leads the list of undervalued markets at -10.3%, followed by three Ohio markets: Cleveland (-6.9%), Cincinnati (-3.4%), and Columbus (-3.2%). About The PMI Economic & Real Estate Trends (ERET) Report and US Market Risk Index The PMI Economic and Real Estate Trends (ERET) Report containing the US Market Risk Index is published quarterly by PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE:PMI). The Risk Index is a proprietary statistical model that measures geographic house-price risk by predicting the probability of a regional decline in home prices in the nation's 50 largest metropolitan statistical areas (MSAs) and metropolitan statistical area divisions (MSADs) over the next two years. The PMI US Market Risk Index is based on the House Price Index from the Office of Federal Housing Enterprise Oversight (OFHEO OFHEO Office of Federal Housing Enterprise Oversight (US HUD) ), labor market labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience statistics from the Bureau of Labor Statistics Bureau of Labor Statistics (BLS) A research agency of the U.S. Department of Labor; it compiles statistics on hours of work, average hourly earnings, employment and unemployment, consumer prices and many other variables. , and the PMI affordability index, which uses local median household income The median household income is commonly used to provide data about geographic areas and divides households into two equal segments with the first half of households earning less than the median household income and the other half earning more. , home price appreciation, and the price of a conventional mortgage to calculate the local share of mortgage payment to income relative to its baseline year of 1995. The PMI US Market Risk Index scale ranges from one to 1,000 and translates to a percentage. For example, a score of 100 indicates a 10% chance of a decline in home prices over the next two years. A higher score indicates a higher likelihood of future home price declines. The PMI Risk Index scale is linear. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , an increase in risk index score of 100% (for example, from 100 to 200) indicates that the risk of home price decline has doubled. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , a decline in risk index score by 50% (from 100 to 50) indicates that the risk of home price decline has declined by 50%. The Affordability Index score is linear against a baseline of 100 in 1995. For example, an AI score of 85 means that the median home in that area is 15 percent less affordable than it was in 1995. The PMI Valuation Index is also based on the OFHEO House Price Index. In addition it incorporates data on regional and U.S. median household income obtained from the Bureau of Economic Analysis (BEA BEA - Basic programming Environment for interactive-graphical Applications, from Siemens-Nixdorf. ) and the U.S. Census, the benchmark 30-year fixed rate mortgage, and regional household densities estimated by PMI using census data. The Valuation Index compares price growth as shown by the OFHEO HPI HPI abbr. history of present illness over the past 10 years and compares that to the price growth that would have been expected for area over that same period based on that MSA's long-term trend. A complete copy of the latest PMI Economic and Real Estate Trends report is available at http://www.pmigroup.com/newsroom/publications.html. An appendix that provides Market Risk Index data for all US MSAs is also available. About PMI Mortgage Insurance Co. PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE:PMI), is a leading U.S. residential mortgage insurer, licensed in all 50 states, the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). , and Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. . Private mortgage insurance expands home ownership opportunities by enabling borrowers to buy homes with down payments of less than 20% and facilitates the sale of low down payment mortgages in the mortgage capital markets. PMI is incorporated in Arizona and headquartered in Walnut Creek, CA. For more information: www.pmigroup.com. Cautionary Statement: Statements in this press release that are not historical facts or that relate to future plans, events or performance are 'forward-looking' statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. include, but are not limited to, PMI's Risk Index and Valuation Index and any related discussion, and statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc future economic and housing market conditions. Forward-looking statements are subject to a number of risks and uncertainties including but not limited to, the following factors: changes in economic conditions, economic recession or slowdowns, adverse changes in consumer confidence, declining housing values, higher unemployment, deteriorating borrower credit, changes in interest rates, the effects of Hurricanes Katrina and Rita, or a combination of these factors. Other risk and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, including our report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2004. |
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