PMI Group: Expect more house price declines

This maps shows the risk of further house price declines for the country's metropolitan statistical areas. High risk is red; low risk is blue. Click on the image to see the full-sized version:

The Wall Street Journal summarizes PMI Group's report:

Nearly 85% of the country’s housing markets are facing an increased risk of home price declines over the next two years, and prices are likely to slide in half of the largest 50 U.S. markets through the beginning of 2011, according to a report from mortgage insurer PMI Group Inc.

Rising unemployment is accelerating foreclosures and home price declines in a diverse group of markets that are likely to spread the reach of housing pain beyond the hardest hit four states–California, Nevada, Florida and Arizona. ...

“Probabilities of lower house prices in two years have risen significantly in MSAs as diverse as Kennewick, Wash., and Kokomo, Ind.,” the report says. The report doesn’t estimate the severity of those price declines.

The report's highlights:

* To date, the worst of the current downturn hit the economy in the fourth quarter of 2008 and the first quarter of 2009.

* Rapidly rising foreclosure and unemployment rates, continuing declines in house prices, and weakening consumer demand all worked to drive risk higher in the general economy, as well as the housing market specifically.

* The risk of house price declines across many of the nation’s MSAs rose significantly during the first quarter.

* The increased risk of future house price declines is now largely being driven by rising unemployment and foreclosure rates (the latter adding to the unsold supply of homes).

* There are some signs of coming improvement, but it is still too early to say that we have reached the bottom in the market.

* Some of the positive elements appearing in the second quarter are:

1. Slowing rates of house price depreciation – prices are falling, but not as fast.

2. Unfortunately, unemployment continues to increase as payroll employment continues to decline, but each has slowed relative to their first quarter 2009 pace of deterioration.

3. Housing affordability continues to improve in response to the significant decline in house prices and still relatively low rates of interest.

According to the PMI Group report, the probability that the Washington-Arlington-Alexandria MSA will be lower in two years is 91.7%. The probability that the Baltimore-Towson MSA will be lower in two years is 89.6%.