PMI Says US House Prices on Two Paths

Mortgage insurer PMI Group’s latest report on the risk of falling home prices concludes there are “two distinctly different paths.” Actually, there is some improvement in a great many parts of the country. These were the areas least affected by soaring house prices in the first place. The other path is represented by the likes of California and Florida, where PMI says there is more pain ahead.

PMI’s Summer 2008 US Market Risk Index(SM) ranks the nation's 50 largest metropolitan statistical areas [MSA] according to the likelihood that home prices will be lower in two years. The company said, “The risk of lower prices in two years declined in 35 of the nation's 50 largest MSAs, and among all 381 MSAs, 326 experienced a decline in risk. Among the top 50 MSAs, 16 ranked in the two highest risk categories, and among those, 15 were in California, Florida, Nevada, and Arizona. Risk of lower prices in two years is greater than 50 percent in all of these MSAs.”

Compared to a year ago, PMI noted, “there has been a significant increase in the number of existing single-family homes for sale relative to the number of buyers, even beyond the normal increase in the spring home sales season. April's ratio is the highest since 1985, said David Berson, PMI's Chief Economist and Strategist. Given the magnitude of the inventory overhang, we expect national home price declines to continue into at least 2009.”

That said, “Housing affordability continued to improve during the first quarter, according to PMI's proprietary Affordability Index(SM), which measures how affordable homes are today in a given MSA relative to a baseline of 1995.” This is what one would expect in a recovery, falling prices leading to greater affordability because the price is closer to “right.”

Although there is a great deal of suffering ahead for a number of markets, this is nothing more or less than capitalism at work. Property as an asset class soared as other investment classes dropped. Money essentially got parked there. Too much money chasing too few goods is the definition of inflation, and that’s what happened to the US housing market. Corrections always hurt, but they are part of the system.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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