The risk of housing price corrections in key metropolitan statistical areas continued to show a split during the fourth quarter of 2007, a new report released Thursday found. PMI Mortgage Insurance Co. said that the risk of housing price declines remains unevenly distributed across the U.S., and centered on former "bubble" markets.
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"Risk is beginning to mitigate in some areas of the country while it continues to increase in others," the company said in a press statement. "Risk continues to increase in states where price growth dramatically exceeded historical norms and began to decline in areas where prices grew at a sustainable rate." Thirteen of the nation's top 50 MSAs are now in PMI's highest risk rank, up from 12 one quarter ago, representing a greater than 60 percent chance that home prices in these areas will be lower in two years. Risk remains largely concentrated in a number of MSAs in California and Florida, PMI said, as well as in Las Vegas, NV, and Phoenix, AZ. The MSAs with the highest risk scores were Riverside/San Bernardino/Ontario, CA (93 percent), Las Vegas (91 percent), and Orlando (85 percent), according to PMI's report.
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"Excess supply is responsible for much of the risk we're seeing in the market," said David W. Berson, chief economist and strategist for the PMI Group (PMI). "The excess supply of housing in the United States is 9.2 months for existing homes (the 20-year average has been 6) and 9.8 months for new homes (the 20-year average has been 5.5), which will continue to depress prices [in the highest risk markets]." In the report, PMI said that it expects the housing market to stabilize "sometime in the second half of this year," and that the inventory of unsold homes would likely peak later this year. Nonetheless, the mortgage insurer expects prices to fall well into 2009 as historically high levels of inventory will take time to run off. Berson said he expects the S&P/Case-Shiller housing price index to fall 20 percent from peak-to-trough, translating to an 8 percent decline in the OFHEO housing price index. Both indexes are widely watched by market participants, but measure different aspects of the U.S. housing market. For more information, visit http://www.pmi-us.com. Disclosure: The author owned no positions in PMI when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.