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PMI Mortgage Insurance Co. Risk Index Indicates a Decline in Probability of Average Home Price Depreciation

02-24-05 08:05 AM EST | WALNUT CREEK, Calif. --(BUSINESS WIRE)--

PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE: PMI), has released its winter 2005 Risk Index indicating a decrease in the probability of an overall house price decline since the autumn of 2004. PMI's Risk Index represents PMI's view on geographic house-price risk and the probability of a regional home-price decline as measured over the next two years.

Based on PMI's Risk Index model, as of January 2005, the average risk value of the 50 largest Metropolitan Statistical Areas (MSAs) is 161. This implies that on average, there exists a 16.1 percent probability of an overall house price decline, as measured within the next two years and across the 50 largest housing markets.

The winter 2005 average risk value decreased sequentially, quarter-over-quarter, by 13.4 percent. As of autumn 2004, PMI Risk Index data showed that the average risk value of the 50 largest MSAs was 186, which implied an 18.6 percent probability of an overall house price decline, measured within the next two years and across the 50 largest housing markets.

Analysts at PMI have attributed the average decrease to improving nationwide economic conditions indicated by generally lower regional unemployment rates and increasing (or less negative) job creation. Eight of the nine MSAs ranked at the top of PMI's Risk Index, but did experience a substantial increase in risk. For these markets, another quarter of record home price appreciation has further dented home affordability even at mortgage rates close to historic lows. As affordability for these MSAs drifts lower, this signals a further misalignment of home prices with long-term economic fundamentals causing the probability of a two-year price decline to escalate.

"Despite the Federal Reserve's gradual increase in its target federal funds rate, the 30-year fixed mortgage rate has slightly declined, thus encouraging consumers to pursue the opportunity to benefit from low mortgage rates. This has contributed to continued strength for U.S. home prices," said Marco Van Akkeren, Director, Economist, PMI Mortgage Insurance Co.

Beginning in the third quarter 2004, PMI revised its list of the 50 largest housing markets in the United States. PMI's modification conforms to the Office of Management and Budget's (OMB) 2003 establishment of an amended definition for the nations MSAs, which has resulted in the creation of new MSAs, as well as modifications to existing MSAs.

The five MSAs least likely to exhibit home price declines over the next two years are Indianapolis, Rochester, NY, Oklahoma City, Buffalo-Niagara Falls, NY and Pittsburgh. Rochester and Buffalo are highly affordable housing markets. For more than ten years, these areas' home prices have appreciated at a much slower pace compared to the national average, and the local economy, with its heavy concentration in manufacturing, has expanded only modestly. Pittsburgh is hampered by chronically weak population trends. Oklahoma City has also trailed the nation in home-price appreciation, but shows positive demographic trends.

Coastal MSAs continued to crowd the top of PMI's Risk Index. Three MSAs in the Northeast region and six California MSAs held the top nine spots on the risk index where home price declines are most likely over the next two years. Boston, San Jose-Santa Clara, San Francisco-Oakland, San Diego and Providence rounded out the five most risky on the risk index list. New England MSAs have maintained a trend of lower affordability and heightened house-price risk. On the west coast, labor conditions in Northern California MSAs have improved considerably compared to the previous quarter, but substantial growth in home prices has lowered affordability, pushing up their risk index values. -0-

                         PMI Risk Index by MSA

                                                       Risk    

MSA                                                    Index   

---                                                    -----

Boston-Cambridge-Quincy, MA-NH                          533  

San Jose-Sunnyvale-Santa Clara, CA                      530  

San Francisco-Oakland-Fremont, CA                       479   

San Diego-Carlsbad-San Marcos, CA                       433   

Providence-New Bedford-Fall River, RI-MA                397   

Sacramento-Arden-Arcade-Roseville, CA                   369   

New York-Northern New Jersey-Long Island, NY-NJ-PA      363   

Los Angeles-Long Beach-Santa Ana, CA                    359   

Riverside-San Bernardino-Ontario, CA                    316   

Detroit-Warren-Livonia, MI                              274   

Minneapolis-St Paul-Bloomington, MN-WI                  263   

Denver-Aurora, CO                                       224   

Miami-Fort Lauderdale-Miami Beach, FL                   176   

               Average                                  161   

Jacksonville, FL                                        158   

Washington-Arlington-Alexandria, DC-MD-VA-WV            151   

Hartford-West Hartford-East Hartford, CT                142   

Tampa-St Petersburg-Clearwater, FL                      137   

Austin-Round Rock, TX                                   117   

Richmond, VA                                            117   

Charlotte-Gastonia-Rock Hill, NC-SC                     113   

Dallas-Fort Worth-Arlington, TX                         112   

Portland-Vancouver-Beaverton, OR-WA                     109   

Phoenix-Mesa-Scottsdale, AZ                             105   

Kansas City, MO-KS                                      105   

Houston-Baytown-Sugarland, TX                           103

Orlando, FL                                             102 

Atlanta-Sandy Springs-Marietta, GA                      101 

Virginia Beach-Norfolk-Newport News, VA-NC              101 

Las Vegas-Paradise, NV                                   97 

Seattle-Tacoma-Bellevue, WA                              97 

Baltimore-Towson, MD                                     96

St Louis, MO-IL                                          94 

Chicago-Naperville-Joliet, IL                            90 

Cleveland-Elyria-Mentor, OH                              74 

Milwaukee-Waukesha-West Allis, WI                        73

Philadelphia-Camden-Wilmington, PA-NJ-DE-MD              71 

New Orleans-Metairie-Kenner, LA                          70 

San Antonio, TX                                          69 

Columbus, OH                                             68 

Nashville-Davidson-Murfreesboro, TN                      65  

Louisville, KY-IN                                        63

Cincinnati-Middletown, OH-KY-IN                          63 

Birmingham-Hoover, AL                                    62 

Salt Lake City, UT                                       61 

Memphis, TN-MS-AR                                        60 

Indianapolis, IN                                         60 

Rochester, NY                                            59 

Oklahoma City, OK                                        57 

Buffalo-Niagara Falls, NY                                57 

Pittsburgh, PA                                           57 

The PMI Risk Index

The PMI Risk Index is a statistical model based on certain measures of economic activity and conditions that PMI believes are predictive of the likelihood of home price declines over the next two years. Factors used to derive the PMI Risk Index include the House Price Index from the Office of Federal Housing Enterprise Oversight, labor market statistics from the Bureau of Labor Statistics and the affordability index, which captures changes in the demand for housing as a function of local median household income and the median mortgage payment.

The PMI Risk Index scale ranges from one to 1,000, where a higher score indicates a higher likelihood of future home price declines. For example, a PMI Risk Index of 100 indicates a 10% chance of a decline in home prices over the next two years.

Because the PMI Risk Index scale is linear, if the PMI Risk Index for an MSA were to increase by 100%, say to 200 from 100, then, according to the PMI Risk Index model, the risk of home price decline has also doubled. Alternatively, if the score were to decline by 50%, for example to 50 from 100, the risk of home price decline has also declined by 50%.

A complete copy of the latest PMI Economic and Real Estate Trends report containing the latest PMI Risk Index scores and analysis is available at: http://www.pmigroup.com/lenders/eret.html.

About PMI Mortgage Insurance Co.

PMI Mortgage Insurance Co. is a leading U.S. residential mortgage insurer, licensed in all 50 states, the District of Columbia and Puerto Rico. Residential mortgage insurance protects lenders and investors against potential losses in the event of borrower default. Private mortgage insurance facilitates the sale of low down payment mortgages in the capital mortgage market and expands home ownership opportunities by enabling borrowers to buy homes with down payments of less than 20%. PMI is incorporated in Arizona and headquartered in Walnut Creek, CA.

Cautionary Statement: Statements in this press release that are not historical facts or that relate to future plans, events or performance are 'forward-looking' statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, PMI's Risk Index and any related discussion, and statements relating to future economic and housing market conditions. Forward-looking statements are subject to a number of risks and uncertainties including but not limited to, the following factors: changes in economic conditions, economic recession or slowdowns, adverse changes in consumer confidence, declining housing values, higher unemployment, deteriorating borrower credit, changes in interest rates, or a combination of these factors. Other risk and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, including our report on Form 10-Q for the period ended June 30, 2004.


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