GREENSBORO, N.C.--(BUSINESS WIRE)--The number of existing homes for sale hasn’t been this low since analysts started tracking the data in the early 80s, making it a difficult market for buyers. According to the new Summer 2018 edition of The Housing and Mortgage Market Review (HaMMR), released today by Arch Mortgage Insurance Company (“Arch MI”), below-normal levels of construction coupled with a strong job market suggest that home prices have a 95 percent chance of rising over the next two years. Those increases are likely to occur more rapidly in the entry-level housing segment – creating additional challenges for first-time buyers.
“Fewer people are selling starter homes to trade up to bigger houses, and that’s a trend that will continue now that the majority of homeowners have lower mortgage rates than they could get on a new loan,” said Dr. Ralph G. DeFranco, Global Chief Economist for Arch Capital Services, Inc. “Millions of entry-level homes were converted from owner-occupied to investor-owned rentals during the foreclosure crisis and higher development costs – ranging from utility hook-up fees to building permits – are leading builders to focus on constructing larger, more expensive houses. With fewer new starter homes, the most likely scenario is continued, rapid price growth of existing homes, particularly at the lower end of the market.”
Extremely high demand and rising home prices are good news for current homeowners. The latest quarterly Arch MI Risk Index, a statistical model based on nine indicators of the health of local housing markets, estimates that the average probability across the country of home prices in 2020 being lower than they are today remains at 5 percent, which is unchanged from the prior quarter.
The states with the highest risk of having lower home prices in two years are Alaska at 27 percent, followed by West Virginia at 22 percent. Among larger metros, Houston, Texas (22 percent) and San Antonio, Texas (16 percent) are the riskiest because their home prices are far higher than expected compared to the historical relationship between prices and incomes.
- The Housing and Mortgage Market Review is posted at archmi.com/hammr. The Summer 2018 edition summarizes current U.S. housing market conditions and the factors limiting new construction as demand rises.
- Dr. DeFranco will host a Housing Update webinar discussing market conditions and the details of HaMMR on July 24 and 25, 2018. Registration is free at archmi.com/hammr.
- Detailed and interactive regional graphs and maps showing home prices and estimates of over-/ undervaluation are also available at archmi.com/hammr by clicking on the HPI Charts link.
Every state is expected to have positive home price growth over the next two years, according to the Arch MI Risk Index, which would be a continuation of what actually happened over the past year.
Alaska, West Virginia, North Dakota and Wyoming have the highest probability of home price declines over the next two years due to the lingering effects of weakness in the energy-extraction sector. However, risks in these areas are trending down and these states’ housing markets are likely to continue to improve, thanks to higher oil prices.
Summer 2018 Arch MI Risk Index
States with the Highest Risk Index Values (Probability of Price Decline Times 100)
|State||Risk Index||Change in Quarter|
About Arch MI’s Housing and Mortgage Market Review, Risk Index and Estimates of Over-/Undervaluation
The Housing and 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 Federal Housing Financing Agency (FHFA) All-Transactions Regional Housing Price Index (HPI) will be lower in two years. 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 latest HaMMR, Risk Index and local housing percent over-/undervaluation can be reviewed at archmi.com/hammr.
Arch MI’s estimates of home price over-/undervaluation are the percentage difference between current home prices and our Fundamental Home Value Index, a statistical model based on the historical relationship between incomes and home prices.
Detailed, interactive regional graphs and maps are available on Arch MI’s website, showing relative over- or undervalued home prices at archmi.com/HPI-Charts-and-Maps.
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 Greensboro, North Carolina, with significant operations in Walnut Creek, California, Arch MI's mission is to protect lenders against credit risk, while extending the possibility of responsible home ownership 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.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements, other than statements of historical fact included in or incorporated by reference in this release, are forward-looking statements.
Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and our ability to maintain and improve our ratings; investment performance; the loss of key personnel; the adequacy of our loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; our ability to successfully integrate, establish and maintain operating procedures and integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to us of reinsurance to manage our gross and net exposures; the failure of others to meet their obligations to us, and other factors identified in our filings with the US Securities and Exchange Commission.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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© 2018 Arch Mortgage Insurance Company. All Rights Reserved. Arch MI is a marketing term for Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company. The Housing and Mortgage Market Review and Arch MI Risk Index are registered marks of Arch Capital Group (U.S.) or its affiliates. HaMMR is a service mark of Arch Capital Group (U.S.) or its affiliates.