LV tops list for risk for homes

NEW YORK — Some homeowners in Las Vegas, California and Florida now face more than a 60 percent chance their property will be worth less in two years, according to a new study by a mortgage insurer. But for Texans and Midwesterners, there is much less reason to worry.

The PMI U.S. Market Risk index, released Tuesday by PMI Mortgage Insurance Co., predicts a less than one in 10 chance of price depreciation in markets such as Dallas, Houston and Indianapolis. Pittsburgh is the safest, with just a 6.4 percent risk that home prices will fall.

That’s in stark contrast to the once-booming regions on the coasts. The index found that 15 of the nation’s 50 largest metro areas have a greater than 50 percent chance of seeing price drops.

Eleven of those markets are in California and Florida, including Los Angeles and Miami. These are areas that enjoyed some of the largest price run-ups during a five-year housing boom that ended nearly two years ago.

The riskiest of all markets are Las Vegas; Phoenix; Riverside, Calif.; and West Palm Beach, Fla. — each with a greater-than-60 percent chance of depreciation.

“What the markets with the greatest risk of decline have in common is a history of price volatility: rapidly rising rates of price appreciation above the long-term average followed by a recent sharp slowdown in the rate of appreciation,” said Mark Milner, PMI’s chief risk officer.

Nationwide, the average chance of a price decrease in the 50 largest markets is 34 percent, PMI said. Boston and Washington are the riskiest markets in the East, with a 50 percent chance of decline. New York City is safer, coming in at about the national average

PMI’s Risk Index estimates the probability that home prices will fall within the next two years, but does not forecast the depth of any decline. Its calculations are based on first-quarter data on home-price appreciation from the Office of Federal Housing Enterprise Oversight, along with mortgage prices, labor market trends and housing demand in each market.

The company adjusted its statistical model to give more weight to recent volatility in home prices, which led in part to the increased risk scores in metro areas in the Western and Southeastern regions, PMI said.

PMI, a unit of residential mortgage insurer PMI Group, typically publishes the index quarterly but skipped the spring reading because of the revision to its model.

The forecast for price declines in many major markets in the next two years comes with the housing market already struggling with lower prices.

The median price for an existing single-family home fell 1.8 percent to $212,3000 in the first quarter, the National Association of Realtors reports. That was the third consecutive quarterly decline. Prices slid 2.6 percent in April, a record ninth consecutive monthly drop.

Home prices fall when the supply of available houses exceeds the number of buyers on the market. That has been the case for more than a year, after builders spent lavishly to develop land in response to a surge in demand for homes that was exaggerated by speculative buyers.

Companies have curtailed building recently as they try to sell existing stock. In May, new-home construction fell 2.1 percent, mainly on weakness in the South and West, the Commerce Department reported earlier Tuesday. That was the sharpest drop since a 13.9 percent slump in January.

Construction permits, an indicator of future activity, fell 1.8 percent. But Banc of America analyst Daniel Oppenheim said the drop was not enough to affect an upturn in prices.

“Lower construction is needed to work through the excess supply,” he said. Until that happens, he added, builders will likely continue to cut prices to increase sales, which will hurt prices for preowned homes.