The likelihood that home prices will decline is itself declining overall, according to the Fall 2016 Housing and Mortgage Market Review, published by Arch Mortgage Insurance Company. However, energy-producing areas of the country remain at heightened risk for price declines amid decelerating growth.
Arch MI reported Tuesday that the likelihood of home price declines over the next two years remains very low at only 4 percent. This is down from an average of 6 percent a year ago and 13 percent two years ago. Texas, Mississippi, and Idaho lead states with the least likelihood of price declines.
On the other side of things, states heavy with energy extraction capital (coal, oil, and natural gas extraction) are experiencing decelerating home price growth and remain at heightened risk for declines in home prices, the report stated. North Dakota, Wyoming and West Virginia are most at risk.
“The economies in these three states are currently in recession with weakening employment, due primarily to declines in energy-related jobs,” the report stated.
North Dakota had a 47 percent chance of a price decline of any magnitude over the next two years. Though high, that number is actually down from Arch’s summer estimate of 52 percent. Still, the state has experienced a 2.2 percent drop in year-over-year total employment (the second largest employment decline in the nation) and the state’s home prices are estimated to be overvalued by 21 percent relative to historic norms, the report stated.
Wyoming had a 44 percent chance of price declines, while West Virginia had a 31 percent chance.
Despite Texas being the least likely state to see price reductions overall, the only metro in the country in the “elevated risk” category was Houston, and the only metro in the “elevated risk” category was Fort-Worth. Both metros are tied to oil wealth.
“Apart from some underlying issues that continue to hold back the housing sector, ranging from weak wage growth to skyrocketing student debt,” said Ralph DeFranco, global chief economist for mortgage services at Arch Capital Services, “strong dynamics are now in place that will continue pushing up home prices faster than inflation for the foreseeable future. Positive fundamentals in today’s housing market include affordability, job growth, a shortage of housing, rising rents and underpriced or fairly valued housing in most areas of the country.”