PMI Mortgage Insurance Co. of Walnut Creek, Calif., the U.S. subsidiary of The PMI Group Inc. (NYSE: PMI), 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 San Diego market area is one of the index's 10 highest with a 72 percent chance that prices will fall.
The 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.
The 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 and Phoenix.
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 (93 percent), Las Vegas-Paradise (91 percent), Orlando-Kissimee, Fla. (85 percent) and Phoenix-Mesa-Scottsdale (84 percent).
San Diego-Carlsbad-San Marcos market was in the top 10 at 72 percent.
Other California markets included Santa Ana-Anaheim-Irvine at 81 percent, Sacramento-Arden-Arcade-Roseville at 78, and Los Angeles-Long Beach-Glendale at 77 percent.
Below San Diego were Oakland-Fremont-Hayward at 63 percent, San Jose-Sunnyvale-Santa Clara at 51 percent, and San Francisco-San Mateo-Redwood City at 30 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 index, 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.