New Report Finds Low Risk of Nationwide Home Price Declines, with “Energy Patch” States Most at Risk
Arch MI Winter 2016 Housing and Mortgage Market Review and Arch MI
Risk Index® Continues to Forecast a Strong
Housing Market
The likelihood of home price declines across the United States over the
next two years remains low at 6 percent, according to the Arch Mortgage
Insurance Company (“Arch MI”) Winter 2016 Housing and Mortgage Market
Review, which contains the latest Arch MI Risk Index®
model results. Despite the continued low national risk, “Energy Patch”
states – coal-, oil- or natural gas- producing states – are
significantly more at risk as they continue to experience the fallout
from large drops in energy prices.
The report, released today by Arch MI, a leading provider of private
mortgage insurance and wholly owned subsidiary of Arch Capital Group
Ltd., models the state- and metro-level risk indices to predict the
likelihood that home prices in a region will decrease over the next two
years, based on recent economic and housing market data.
“Nationwide, the housing market is likely to strengthen over the coming
year in spite of economic headwinds from a strong dollar and expected
gradual rate increases by the Federal Reserve,” said Dr. Ralph G.
DeFranco, Senior Director of Risk Analytics and Pricing at Arch MI.
”Despite this forecast, ’Energy Patch’ states such as North Dakota,
Wyoming, West Virginia and Alaska are at greatest risk of experiencing
declining prices as their economies continue to slow due to continued
fallout from the large drop in coal, oil and natural gas prices seen
over the last year. In addition, Texas has the riskiest MSA’s due to oil
price declines.”
“Apart from these few exceptions, national prices should rise faster
than inflation over the coming years due to a number of strong
fundamentals, including: a shortage of homes for sale or rent, better
than average affordability, and continued job growth of 2 to 3 million
jobs a year.”
On a state level, North Dakota, Wyoming, Alaska, West Virginia and New
Mexico have the highest Arch MI Risk Index values. Total employment
continues to weaken in these states, even as home prices continue to
rise. Although conditions will likely be weak for several more years,
the odds still favor positive (but weak) home price growth for most of
the region.
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North Dakota has the highest Arch MI Risk Index value of 46 (46
percent change of any sized price decline), primarily due to the 2.9
percent decline in employment over the past year. North Dakota’s home
prices are estimated to be overvalued by 20 percent in the aftermath
of the oil fracking boom and bust.
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Wyoming has an Arch MI Risk Index value of 37. The state is the
nation’s largest coal producer and its mining and gas drilling
employment has fallen to 10-year lows.
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Alaska’s Arch MI Risk Index value came in at 33. The state’s home
price growth is decelerating as low energy prices set back the most
oil-dependent economy in the nation.
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West Virginia has an Arch MI Risk Index value of 33 and registered the
nation’s second largest year-over-year decline in total employment
(-1.8 percent). The state’s coal prices and employment are hurt by
competition from cheap natural gas.
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New Mexico registered a score of 31 on the Arch MI Risk Index due to
the potential risk of recession due to job losses in government and
energy.
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Texas has the top five riskiest MSA’s with between 26-36% chance of
house price declines in those regions.
Within the Arch MI Risk Index values for the 50 most populous
Metropolitan Statistical Areas (“MSAs”), only one MSA registered in the
elevated-risk category: Houston-The Woodlands-Sugarland, TX (36). Four
other Texas MSAs are within the “moderate risk” category with Risk Index
scores of 26, including: Austin-Round Rock, Dallas-Plano-Irving, Fort
Worth-Arlington and San Antonio-New Braunfels. Home prices in all of
four of these MSAs are well above their historic long-term trends – by
32, 24, 15 and 19 percent respectively, compared to their historical
relationships to incomes.
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Fall 2015 Arch MI Risk Index® 10
Riskiest States and 10 Riskiest Large MSAs
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Highest Risk States
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Highest Risk in the 50 Largest MSAs
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Risk Rank
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State
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Risk Index
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Change from Prior Year
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Risk Rank
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MSA
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Risk Index
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Change from Prior Year
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Elevated
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North Dakota
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46
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0
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Elevated
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Houston-The Woodlands-Sugar Land, TX
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36
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7
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Elevated
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Wyoming
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37
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0
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Moderate
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Austin-Round Rock, TX
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26
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9
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Elevated
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West Virginia
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33
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-1
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Moderate
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Dallas-Plano-Irving, TX
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26
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5
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Elevated
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Alaska
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33
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-1
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Moderate
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Fort Worth-Arlington, TX
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26
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2
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Elevated
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New Mexico
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31
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-1
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Moderate
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San Antonio-New Braunfels, TX
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26
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3
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Moderate
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Oklahoma
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28
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0
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Low
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Anaheim-Santa Ana-Irvine, CA
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6
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0
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Moderate
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Louisiana
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28
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-5
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Low
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West Palm Beach-Boca Raton-Delray Beach, FL
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4
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2
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Moderate
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Texas
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26
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4
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Low
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New York-Jersey City-White Plains, NY-NJ
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3
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-4
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Low
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Mississippi
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8
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-4
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Low
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San Diego-Carlsbad, CA
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2
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-1
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Low
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Hawaii
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3
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-2
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Low
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Atlanta-Sandy Springs-Roswell, GA
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2
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0
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Dr. DeFranco will be hosting two webinars to discuss the implications of
the latest data during the week of January 11th, 2016.
Registration is freely available at archmi.com,
under the Resources tab.
More details are available in the Housing & Mortgage Market Review
– Winter 2016 edition, available at archmi.com
under the News & Resources tab.
https://mi.archcapgroup.com/Portals/1/Documents/hammr/Actual_HPI_Relative_to_Fundamental_HPI_Winter2016.pdf
https://mi.archcapgroup.com/Portals/1/Documents/hammr/RiskIndex_All_MSA_Winter2016.xlsx
About Arch MI’s Housing & Mortgage Market
Review and Risk Index
The Housing & Mortgage Market Review, which presents Arch MI
Risk Index® results, is published quarterly by Arch
Mortgage Insurance Company. The Risk Index is a proprietary statistical
model that measures home price risk by estimating the probability that
home prices in a state or one of the nation’s 401 largest metropolitan
statistical areas (MSAs) will be lower in two years. For example, a
score of 25 indicates a 25 percent chance the FHFA All-Transactions
Regional Housing Price Index (HPI) will be lower two years from the date
of the input data release. The Arch MI Risk Index weights various local
economic and housing market factors, such as affordability, unemployment
rates, economic growth rates, net migration, housing starts, etc. based
on a statistical model built on data going back to the early 1980s. It
estimates the likelihood of seeing negative home prices, and does not
indicate the size of any declines. The Arch MI Risk Index is updated
after each quarterly release of the FHFA All-Transactions Regional HPI.
ABOUT ARCH MORTGAGE INSURANCE COMPANY
Arch Capital Group Ltd.’s U.S. mortgage insurance operation, Arch MI, is
a leading provider of private insurance covering mortgage credit risk.
Headquartered in Walnut Creek, CA, Arch MI's mission is to protect
lenders against credit risk, while extending the possibility of
responsible homeownership to qualified borrowers. Arch MI’s flagship
mortgage insurer, Arch Mortgage Insurance Company, is licensed to write
mortgage insurance in all 50 states, the District of Columbia, and
Puerto Rico. For more information, please visit archmi.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward−looking statements. This release or any other
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statements. A non-exclusive list of the important factors that could
cause actual results to differ materially from those in such
forward-looking statements includes the following: adverse general
economic and market conditions; increased competition; pricing and
policy term trends; fluctuations in the actions of rating agencies and
our ability to maintain and improve our ratings; investment performance;
the loss of key personnel; the adequacy of our loss reserves, severity
and/or frequency of losses, greater than expected loss ratios and
adverse development on claim and/or claim expense liabilities; greater
frequency or severity of unpredictable natural and man-made catastrophic
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regulations and/or tax laws in the United States or elsewhere; our
ability to successfully integrate, establish and maintain operating
procedures as well as integrate the businesses we have acquired or may
acquire into the existing operations; changes in accounting principles
or policies; material differences between actual and expected
assessments for guaranty funds and mandatory pooling arrangements;
availability and cost to us of reinsurance to manage our gross and net
exposures; the failure of others to meet their obligations to us; and
other factors identified in our filings with the U.S. Securities and
Exchange Commission.
The foregoing review of important factors should not be construed as
exhaustive and should be read in conjunction with other cautionary
statements that are included herein or elsewhere. All subsequent written
and oral forward−looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by these
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