The risk for home-price declines increased in cities nationwide due to continued deceleration in home-price appreciation and decreased affordability, according to an industry report this week. Economic fundamentals remain strong in most areas, however, with historically low unemployment rates and strong job growth, which helps mitigate the risk of price declines.
“Years of rapid appreciation have made homes less affordable in many areas, and that’s not sustainable over the long term, so what we are seeing is not unexpected,” said Mark F. Milner, chief risk officer of PMI Mortgage Insurance Co., which issued the report. “Over time, moderating appreciation will bring prices back in line with economic fundamentals, particularly incomes, bringing the market back to a healthy balance.”
In 34 of the 50 metro areas surveyed, there is a 34.2 percent chance that home prices will decline in two years. Nineteen metro areas face a greater than 50 percent chance that home prices will decline, up from 18 last quarter, PMI said.
While year-over-year appreciation remained in the double digits in 14 of the 50 largest metro areas, the rate of appreciation slowed in 43. Three metros — Detroit and neighboring Warren, Mich., and Cambridge, Mass. — saw slight year-over-year price declines.
The risk of price declines continues to be concentrated in California and along the Eastern Seaboard, according to the report. Of the 19 MSAs facing a greater than 50 percent chance of a price decline, eight are located in California, eight are in the Northeast, and two are in Florida.
In most areas, the risk of price declines continues to be balanced by strong economic fundamentals, PMI said. With the exception of the upper Midwest, unemployment remains low in most of the country and job growth is positive. Of the top 50 MSAs all but four — Detroit and Warren, Mich.; Cleveland, Ohio; and Indianapolis — saw employment growth. New Orleans led the nation in employment growth at 8.37 percent over the past year, followed closely by Las Vegas at 5.38 percent.