WALNUT CREEK, Calif.--(BUSINESS WIRE)--The likelihood of home price declines across the United States over the next two years remains very low at only 4 percent, according to the Fall 2016 Housing and Mortgage Market Review (HaMMR) published by Arch Mortgage Insurance Company (“Arch MI”), which contains the latest Arch MI Risk Index® model results. This is down from an average of 6% a year ago and 13% two years ago. Despite the low overall risk of home price declines, some areas in the energy-extraction (coal-, oil- or natural gas-producing) states are experiencing decelerating home price growth and remain at heightened risk for declines in home prices.
“Apart from some underlying issues that continue to hold back the housing sector, ranging from weak wage growth to skyrocketing student debt, strong dynamics are now in place that will continue pushing up home prices faster than inflation for the foreseeable future,” said Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services of Arch Capital Services Inc. ”Positive fundamentals in today’s housing market include affordability, job growth, a shortage of housing, rising rents and underpriced or fairly valued housing in most areas of the country. Given these positives for home prices, it isn’t surprising that there is a low probability home prices will decrease in two years.”
The report, released today by Arch MI and posted on archmi.com/hammr, a leading provider of private mortgage insurance and wholly owned subsidiary of Arch Capital Group Ltd., presents the state- and metro-level Arch MI Risk Index® model results of the likelihood that home prices will be lower in two years, based on recent economic and housing market data.
The Fall 2016 edition also features a special report on regional oil shocks and the home price index that compares the decline in oil prices over the past two years to the oil shock of the mid-1980s. Although there was a similar decline in crude oil prices of roughly 60 percent both then (November 1985 to March 1986) and now (June 2014 to year-end 2015), the size of the employment shock in the 1980s was far larger than the most recent event. Today’s housing market has been less affected by the decline in oil prices, thanks to both a greater economic diversity and because the 1980s home price drop was amplified by the savings and loan crisis.
Detailed and interactive regional graphs and maps are also available, showing relative over- or undervalued home prices, at archmi.com/HPI-Charts-and-Maps.
On a state level, North Dakota, Wyoming and West Virginia remain the states most at risk of home prices declines. The economies in these three states are currently in recession with weakening employment, due primarily to declines in energy-related jobs.
- North Dakota has the highest Arch MI Risk Index value at 47 (indicating a 47 percent chance of a price decline of any magnitude over the next two years), down slightly from a Risk Index value of 52 in the Summer 2016 report. North Dakota experienced a 2.2 percent drop in year-over-year total employment (the second largest employment decline in the nation) and the state’s home prices are estimated to be overvalued by 21 percent relative to historic norms.
- Wyoming has an Arch MI Risk Index value of 44, compared to a Risk Index value of 46 in last quarter’s report. Wyoming’s mining and energy-related jobs comprise 10 percent of the state’s employment, the highest percentage in the nation, and have declined by approximately 20 percent from their peak. Home prices did tick up in the second quarter of 2016 but employment fell 3.4 percent from a year earlier.
- West Virginia has an Arch MI Risk Index value of 31, modestly down from 35 in last quarter’s report. The state’s unemployment rate is relatively high at 6 percent, as approximately 20 percent of the state’s coal and gas workers were laid off during the past year.
Within the Arch MI Risk Index values for the 50 most populous Metropolitan Statistical Areas (“MSAs”), only one MSA remains in the “elevated risk” category and one in the “moderate risk” category. In the “elevated risk” category Houston-The Woodlands-Sugarland, TX, has a Risk Index value of 30 and in the “elevated risk” category Fort-Worth-Arlington, TX, registered a Risk Index value of 9.
Fall 2016 Arch MI Risk Index®
10 Riskiest States and 10 Riskiest Large MSAs
| Highest Risk States | Highest Risk in the 50 Largest MSAs | ||||||||||||||||
|
Risk Rank |
State |
Risk Index |
Change from Prior Year |
Risk Rank |
MSA |
Risk Index |
Change from Prior Year |
||||||||||
| Elevated | North Dakota | 47 | 4 | Elevated |
Houston-The |
30 | -6 | ||||||||||
| Elevated | Wyoming | 44 | 8 | Moderate |
Fort Worth-Arlington, |
9 | -18 | ||||||||||
| Elevated | West Virginia | 31 | 26 | Low |
San Antonio-New |
9 | -30 | ||||||||||
| Moderate | Oklahoma | 27 | 1 | Low |
Denver-Aurora- |
6 | -2 | ||||||||||
| Moderate | Alaska | 25 | -10 | Low |
Phoenix-Mesa- |
5 | -5 | ||||||||||
| Moderate | New Mexico | 20 | -5 | Low |
Dallas-Plano-Irving, |
5 | -27 | ||||||||||
| Moderate | Louisiana | 18 | -9 | Low |
Austin-Round Rock, |
5 | -24 | ||||||||||
| Low | Texas | 9 | -20 | Low |
West Palm Beach-Boca |
5 | -25 | ||||||||||
| Low | Mississippi | 8 | 4 | Low |
Nashville-Davidson- |
3 | -4 | ||||||||||
| Low |
Idaho |
5 | 3 | Low |
Fort Lauderdale- |
3 | -15 | ||||||||||
Dr. DeFranco will be hosting two webinars discussing the implications of the latest Housing Review during the week of September 26th, 2016. Registration is free at archmi.com/hammr.
About Arch MI’s Housing & Mortgage Market Review and Risk Index
The Housing & Mortgage Market Review, which presents Arch MI Risk Index® results, is published quarterly by Arch Mortgage Insurance Company. The Risk Index is a proprietary statistical model that measures home price risk by estimating the probability that home prices in a state or one of the nation’s 401 largest metropolitan statistical areas (MSAs) will be lower in two years. For example, a score of 25 indicates a 25 percent chance the FHFA All-Transactions Regional Housing Price Index (HPI) will be lower two years from the date of the input data release. The Arch MI Risk Index weights various local economic and housing market factors, such as affordability, unemployment rates, economic growth rates, net migration, housing starts, etc., based on a statistical model built on data going back to the early 1980s. It estimates the likelihood of seeing negative home prices, and does not indicate the size of any declines. The Arch MI Risk Index is updated after each quarterly release of the FHFA All-Transactions Regional HPI. The complete current Index can be reviewed at archmi.com/hammr.
ABOUT ARCH MORTGAGE INSURANCE COMPANY
Arch Capital Group Ltd.’s U.S. mortgage insurance operation, Arch MI, is a leading provider of private insurance covering mortgage credit risk. Headquartered in Walnut Creek, CA, Arch MI's mission is to protect lenders against credit risk, while extending the possibility of responsible homeownership to qualified borrowers. Arch MI’s flagship mortgage insurer, Arch Mortgage Insurance Company, is licensed to write mortgage insurance in all 50 states, the District of Columbia, and Puerto Rico. For more information, please visit archmi.com.
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