Arch MI’s Winter HaMMR Report Finds Affordability Is Better Than Historic Norms for Many Homebuyers

According to the Quarterly Arch MI Risk Index, Home Prices Are Unlikely to Decline in 2020 and 2021

GREENSBORO, N.C.--()--Homebuyers in most states will find median-priced homes to be more affordable than during the 1990s and early 2000s, according to the Winter edition of The Housing and Mortgage Market Review (HaMMR), released today by Arch Mortgage Insurance Company (Arch MI), a leading provider of mortgage insurance.

Affordability remains surprisingly strong even though home prices have increased around 50% nationally since 2012, according to Dr. Ralph G. DeFranco, Global Chief Economist for Arch Capital Services Inc. “States with higher real estate costs, particularly California and Hawaii, are exceptions, but there are also states experiencing the best affordability in 30 years or more,” he said. “This may be surprising because we tend to focus on home prices rather than affordability. Affordability accounts for the offsetting factors of low interest rates and a 28% increase in median household income since 2012. Historic norms are a more logical basis of comparison than the easier-to-recall market bottom in 2012, when prices had over-corrected below long-term fundamental values because of the foreclosure crisis.”

On a national basis, DeFranco said, it takes about 29% of a median household’s income to make the monthly mortgage payment (assuming 10% down) — substantially less than the 34% average in 1987–2004, which is regarded as a historically “normal” housing market.

The new HaMMR also reveals that the areas with the highest price appreciation now tend to be smaller cities like Chico, California, and Jacksonville, North Carolina, as price increases slowed in many larger cities.

The quarterly Arch MI Risk Index, a statistical model based on nine indicators of the health of local housing markets, suggests the probability of home prices declining over the next two years is very low (10%) compared to the average of the past 30 years (20%).

The states with the highest risk of having lower home prices in two years are Colorado and Oregon, both at 24%, followed by California at 22%, Washington at 21% and Alaska at 19%.

Winter 2020 Arch MI Risk Index
States with the Highest Risk Index Values (Probability of Price Decline Times 100)

State

Risk Index

Change in Quarter

Colorado

24

+1

Oregon

24

0

California

22

+3

Washington

21

0

Alaska

19

-1

Idaho

19

0

West Virginia

19

-3

Florida

17

+3

North Dakota

16

-8

Nevada

15

-1

Among the 100 largest metros, the Miami, Florida, area has the highest Risk Index value (36%), followed by Lakeland, Florida (35%); Denver, Colorado (34%); Riverside-San Bernardino-Ontario, California (30%); and Portland, Oregon (27%).

Commentary resources:

  • The Housing and Mortgage Market Review is posted at archmi.com/hammr. The Winter 2020 issue focuses on how today’s housing affordability compares to historic norms and identifies smaller cities with home price appreciation that is outpacing that of larger communities.
  • DeFranco will host a Housing Update webinar discussing market conditions and the details of HaMMR on Thursday, Jan. 30 (1 p.m. ET/10 a.m. PT), and Friday, Jan. 31 (1 p.m. ET/10 a.m. PT). Registration is free at archmi.com/hammr.
  • Detailed and interactive regional graphs and maps showing home prices are also available at archmi.com/hammr by clicking the View Our HPI Charts and Maps link.

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, 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, 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 U.S. 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.

Contacts

Arch Capital Services Inc.
Greg Hare, 336-333-0416

Method Communications
Margaret Bonaparte, 415-891-4914

Release Summary

According to the Quarterly Arch MI Risk Index, Home Prices Are Unlikely to Decline in 2020 and 2021.

Contacts

Arch Capital Services Inc.
Greg Hare, 336-333-0416

Method Communications
Margaret Bonaparte, 415-891-4914