Rapidly slowing home-price appreciation and declining affordability contributed to a marked increase in the risk of home price declines in cities across the country, according to a report released today.

According to PMI Mortgage Insurance Co.’s latest risk index, there’s a 32.8 percent chance that home prices will decline in the next two years. Risk index scores increased for all of the nation’s 50 largest metropolitan areas and 18 of these metros face a greater than 50 percent chance that home prices will decline, up from 13 last quarter.

“No one should be surprised by the slowdown we’re seeing,” said Mark Milner, chief risk officer of PMI Mortgage Insurance. “Over the past five years home prices appreciated much faster than incomes, and that can’t continue forever. But there are tried and true strategies for surviving the changing market. For companies, those with nationally diversified portfolios should be in good shape to weather the changes we’re seeing. For individuals, it’s important to remember that home ownership is a long-term investment, not a short-term market trade.”

While year-over-year appreciation remained in the double digits in 20 metro areas and topped 20 percent in four — Phoenix, and Orlando, Miami and Tampa, Fla. — the rate of appreciation slowed in 41 of the 50 largest metros. In 13 areas, appreciation dropped below the historical norm of roughly 4 percent to 6 percent.

Detroit recorded the only year-over-year decline (0.61 percent) among the top 50 metro areas.

The risk of price declines continues to be concentrated in California and along the Eastern Seaboard. Of the 18 areas facing a greater than 50 percent chance of a price decline, eight are in California (San Diego, Sacramento, Oakland, Santa Ana, Riverside, Los Angeles, San Jose and San Francisco) and eight are in the northeast (Nassau-Suffolk and New York, N.Y.; Boston and Cambridge, Mass.; Providence, R.I.; Edison and Newark, N.J.; and Washington, D.C.). The remaining two are Fort Lauderdale, Fla., and Las Vegas.

Affordability also dropped in all 50 metro areas, PMI said, in part because of rising interest rates. Twelve areas now have Affordability Index scores below 70, a threshold below which PMI says an area is particularly vulnerable to economic shock. With a score of 56.78, Fort Lauderdale, Fla., is again the least affordable area among the 50 largest metro areas.

In the last five years, home prices have appreciated more than 56 percent on average and more in some areas, Milner said. At the same time, incomes increase only 25 percent, contributing to the decrease in affordability in many areas, he said.

“Going forward, house prices and incomes need to come back into balance so that more Americans can afford to buy homes without resorting to loans that expose them to interest-rate risk and the risk of payment shock,” Milner said.

In most areas, the risk of price declines continues to be balanced by strong economic fundamentals. With the exception of the Upper Midwest, unemployment remains low in most of the country and job growth is positive. Of the top 50 metro areas all but four — Detroit and Warren, Mich.; Newark, N.J.; and New Orleans — saw employment growth. Las Vegas led the nation in employment growth at 5.32 percent over the past year, followed closely by Phoenix at 5.2 percent. In the Upper Midwest, rising unemployment is putting pressure on prices, resulting in Detroit’s year-over-year decline.

PMI Mortgage Insurance Co. is the U.S. subsidiary of The PMI Group, a residential mortgage insurance provider.

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