PMI Mortgage Insurance Co., the U.S. subsidiary of The PMI Group, Inc. (NYSE:PMI), today released its Spring 2008 U.S. Market Risk IndexSM, which ranks the nation’s 50 largest metropolitan statistical areas (MSAs) according to the likelihood that home prices will be lower in two years. The U.S. Market Risk Index shows risk is beginning to mitigate in some areas of the country while it continues to increase in others. 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.
A complete copy of the Spring 2008 PMI ERET report and an appendix that provides data for all 381 U.S. MSAs is available at: http://www.pmi-us.com/eret
The Spring 2008 Risk Index is based on fourth-quarter Office of Federal Housing Enterprise Oversight (OFHEO) data. Thirteen of the nation’s Top 50 MSAs are in PMI’s highest risk rank, with a greater than 60 percent chance that home prices will be lower in two years. Risk remains largely concentrated in a number of MSAs in California and Florida, as well as in Las Vegas, NV, and Phoenix, AZ. Risk scores translate directly into an estimated percentage risk that home prices will be lower in two years. The MSAs with the highest risk scores were Riverside/San Bernardino/Ontario, CA (93 percent), Las Vegas (91 percent), and Orlando (85 percent).
"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. "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 for MSAs in risk ranks 1 and 2."
Housing affordability generally improved during the fourth quarter, according to PMI’s proprietary Affordability IndexSM, which measures how affordable homes are today in a given MSA relative to a baseline of 1995. An Affordability Index score exceeding 100 indicates that homes have become more affordable while a score below 100 means they are less affordable. Nationally, the weighted average affordability index reading was 106.62 in the fourth quarter of 2008, compared with the third quarter reading of 104.25. All told, some 311 MSAs saw improvements in affordability while the remaining 70 were either unchanged or showed a decline.
In addition to the PMI U.S. Market Risk Index showing the risk of price declines, PMI’s Spring 2008 Economic and Real Estate TrendsSM (ERET) also examines the issue of home price declines and projects how severe PMI anticipates price declines will be.
About PMI's Economic & Real Estate TrendsSM (ERET) and U.S. Market Risk IndexSM
The PMI Economic and Real Estate Trends (ERET) containing the US Market Risk Index is published quarterly by PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE: PMI). The Risk Index is a proprietary statistical model that measures geographic house price risk by predicting the probability that home prices in the nation’s 381 largest metropolitan statistical areas (MSAs) and metropolitan statistical area divisions (MSADs) (as measured by the House Price Index from the Office of Federal Housing Enterprise Oversight (OFHEO)) will be lower in two years. The PMI U.S. Market Risk Index is based on data including the OFHEO House Price Index, labor market statistics from the Bureau of Labor Statistics, and the PMI Affordability Index, which uses local per capita household income, home price appreciation, and a blended mortgage rate to calculate the local share of mortgage payment to income relative to its baseline year of 1995. The PMI U.S. Market Risk Index scale ranges from one to 100 and translates to a percentage. For example, a score of 50 indicates a 50 percent chance that home prices will be lower in two years.
About PMI Mortgage Insurance Co.
PMI Mortgage Insurance Co. (PMI US), a subsidiary of The PMI Group, Inc. (NYSE:PMI), provides residential mortgage insurance to mortgage lenders, capital market participants, and investors throughout the United States. PMI US is incorporated in Arizona, headquartered in Walnut Creek, CA, and licensed in all 50 states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands. By mitigating default risk, residential mortgage insurance expands home ownership opportunities and assists financial institutions in reducing the capital they are required to hold against low down payment mortgages. PMI US is rated AA by Standard and Poor’s, Aa2 by Moody’s, and AA by Fitch. For more information: www.pmi-us.com.
Cautionary Statement: Statements in this press release that are not historical facts or that relate to future plans, events or performance are ‘forward-looking’ statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, PMI’s U.S. Market Risk Index, Affordability Index, and any related discussion, and statements relating to future economic and housing market conditions. Forward-looking statements are subject to a number of risks and uncertainties including, but not limited to, the following factors: changes in economic conditions, economic recession or slowdowns, adverse changes in consumer confidence, declining housing values, higher unemployment, deteriorating borrower credit, changes in interest rates, or a combination of these factors. Readers are cautioned that any statements with respect to future economic and housing market conditions are based upon current economic conditions and, therefore, are inherently uncertain and highly subject to the changes in the factors enumerated above. Other risk and uncertainties are discussed in the Company’s filings with the Securities and Exchange Commission, including our report on Form 10-K for the year ended December 31, 2007.