The likelihood of home price declines across the United States over the next two years remains unchanged at only 4 percent, according to the latest Arch MI Risk Index® statistical model results reported in the Winter 2017 edition of The Housing and Mortgage Market Review (HaMMR), published today by Arch MI. This is down from an average, across all states and large cities, of 6% a year ago and 8% two years ago. Despite the low overall risk of home price declines, some areas in the energy-extraction (coal-, oil- or natural gas-producing) states continue to experience decelerating home price growth and remain at heightened risk for declines in home prices.

“Housing is not in a bubble relative to incomes or monthly payments, either in a historical or international context. Even as homeownership remains out of reach for many people, a growing housing shortage will continue to push up national home prices faster than inflation for the foreseeable future,” said Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services of Arch Capital Services Inc.

”Positive fundamentals in today’s housing market include strong affordability due to below-normal mortgage rates, total employment growth of 2 to 2.5 million jobs a year, an extremely tight inventory of homes for sale, accelerating rent increases, and low vacancy rates,” DeFranco said. “While there are many negatives, ranging from weak wage growth to a near-tripling of student debt over the past 10 years, rapid price growth suggests the supply shortfall is more important. Given these positives for home prices, it isn’t surprising that our models give a very low chance that home prices could be lower in two years in the vast majority of cities across the country.”

The HaMMR report, released today by Arch MI, a leading provider of private mortgage insurance and wholly owned subsidiary of Arch Capital Group Ltd., presents the state- and metro-level Arch MI Risk Index model results analyzing the likelihood that home prices will be lower in two years, based on recent economic and housing market data. The report is posted on archmi.com/hammr.

The Winter 2017 edition also features top predictions for the real estate market in 2017 and a report on America’s most and least affordable cities. Among the predictions, Dr. DeFranco expects that in 2017 home prices and rents will increase faster than incomes, policy changes will stimulate demand more than supply – pushing up prices – and mortgage rates will continue to rise. With regard to affordability, U.S. home prices are back to all-time highs nationally and mortgage rates are up more than 0.5% since the election. Nevertheless, home purchase affordability remains highly favorable in a historical context. A special report on affordability identifies St. Louis, MO, Omaha, NE, and Pittsburgh, PA, as among the most affordable large cities while the least affordable include San Francisco, CA, San Jose, CA and Honolulu, HI.

Detailed and interactive regional graphs and maps showing relative over- or undervalued home prices are also available at archmi.com/hammr.

On a state level, Wyoming, North Dakota, and Alaska remain the three states most at risk of home price declines. Their economies, which feature large energy-extraction industries, should start benefiting from recent increases in energy prices. High energy prices, combined with signs that employment is stabilizing, have resulted in lower Risk Index values this quarter:

  • Wyoming has an Arch MI Risk Index value of 38 (indicating a 38 percent chance of a price decline of any magnitude over the next two years), down from last quarter’s Risk Index value of 44. Home price growth increased in the third quarter, but the state is still in recession due to a 20% drop in mining employment.
  • North Dakota has an Arch MI Risk Index value of 36, down from a Risk Index value of 47 in the Fall 2016 report. The recession in North Dakota appears to be ending as declines in total employment appear to have stabilized.
  • Alaska has an Arch MI Risk Index value of 26, relatively unchanged from a Risk Index value of 25 in last quarter’s report. The state of Alaska remains in recession, with the highest unemployment in the country. Additionally, home price growth there is slowing and total employment is falling.

Within the Arch MI Risk Index values for the 50 most populous Metropolitan Statistical Areas (“MSAs”), only one MSA remains in the “elevated risk” category and one in the “moderate risk” category. In the “elevated risk” category, Houston-The Woodlands-Sugarland, TX, has a Risk Index value of 30 and in the “elevated risk” category Fort-Worth-Arlington, TX, registered a Risk Index value of 9.

       
Winter 2017 Arch MI Risk Index(®)
 
10 Riskiest States and 10 Riskiest Large MSAs
   
Highest Risk States Highest Risk in the 50 Largest MSAs
Risk Rank     State    

Latest
Risk
Index

    

1-Year
Change

Risk

Rank

     MSA     Latest

Risk Index

    

1-Year
Change

Elevated     Wyoming     38     1 Moderate     Houston-The Woodlands-Sugar Land, TX     30     -10
Elevated     North Dakota     36     -10 Low     San Antonio-New Braunfels, TX     9     -20
Moderate     Alaska     26     -7 Low     West Palm Beach-Boca Raton-Delray Beach, FL     8     4
Moderate     West Virginia     22     -11 Low     Fort Worth-Arlington, TX     8     -21
Moderate     Oklahoma     21     -7 Low     Austin-Round Rock, TX     7     -19
Moderate     Louisiana     19     -9 Low     Denver-Aurora-Lakewood, CO     7     2
Moderate     New Mexico     17     -14 Low     Phoenix-Mesa-Scottsdale, AZ     5     3
Low     Mississippi     9     1 Low    

Fort Lauderdale-Pompano Beach-Deerfield Beach, FL

    5     3
Low     Texas     8     -18 Low    

Dallas-Plano-Irving, TX

    5     -27
Low     Colorado     5     3 Low    

Nashville-Davidson-Murfreesboro- Franklin, TN

    3     1
                       

Dr. DeFranco will host two webinars discussing the implications of the latest Housing Review during the week of January 8th, 2017. Registration is free at archmi.com/hammr.

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 in two years. 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. The complete current set of Risk Index values may be reviewed at archmi.com/hammr.

ABOUT ARCH MI

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 Greensboro, North Carolina, with significant operations in Walnut Creek, California, Arch MI's mission is to protect lenders against credit risk, while extending the possibility of responsible homeownership to qualified borrowers. 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 written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward−looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward−looking statements.

Forward−looking statements can generally be identified by the use of forward−looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. Forward−looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these 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 events; the impact of acts of terrorism and acts of war; changes in 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 cautionary statements. We undertake no obligation to publicly update or revise any forward−looking statement, whether as a result of new information, future events or otherwise.