Continued deceleration in home price appreciation and decreased affordability caused the risk of home price declines to rise in cities across the country, PMI Mortgage Insurance Co. reported today. PMI U.S. Market Risk Index scores increased for 34 of the nation’s 50 largest MSAs, resulting in an increase in the average score from 328 to 342, which translates into a 34.2 percent chance that home prices will decline in two years. Nineteen MSAs face a greater than 50 percent chance that home prices will decline, up from 18 last quarter. “Years of rapid appreciation have made homes less affordable in many areas, and that’s not sustainable over the long term, so what we are seeing is not unexpected,” said Mark F. Milner, Chief Risk Officer of PMI Mortgage Insurance Co. “Over time, moderating appreciation will bring prices back in line with economic fundamentals, particularly incomes, bringing the market back to a healthy balance.”
While year-over-year appreciation remained in the double digits in 14 of the 50 largest MSAs, the rate of appreciation slowed in 43. Three MSAs — Detroit and neighboring Warren, MI, and Cambridge, MA — saw slight year over year price declines. The risk of price declines continues to be concentrated in California and along the Eastern Seaboard. Of the 19 MSAs facing a greater than 50 percent chance of a price decline, PMI said that eight are located in California, eight are in the Northeast, and two are in Florida. In most areas, PMI said it believes the risk of price declines continues to be balanced by strong economic fundamentals. With the exception of the upper Midwest, unemployment remains low in most of the country, and job growth is positive. Of the top 50 MSAs, all but four — Detroit and Warren, MI, Cleveland, OH, and Indianapolis, IN — saw employment growth. New Orleans led the nation in employment growth at 8.37 percent over the past year, PMI said, followed closely by Las Vegas at 5.38 percent. Download: to see the full report, click here.