GREENSBORO, N.C.--(BUSINESS WIRE)--U.S. housing became less affordable in the first quarter and the cost of carrying a mortgage could increase by the end of year – making affording a house in 2018 more difficult than it has been in decades. Specifically, U.S. housing affordability worsened by 5 percent in the first quarter of 2018 and the monthly mortgage payments needed for home purchases could go up another 10–15 percent by the end of the year, making 2018 one of the worst full-year deteriorations in affordability in the past 25 years. This assessment headlines the new Spring 2018 edition of The Housing and Mortgage Market Review (HaMMR), released today by Arch Mortgage Insurance Company (“Arch MI”).
With property location and interest rates the key factors, the cities where affordability is expected to decline the fastest include Tacoma, WA; Fresno, CA; Baltimore, MD and Boston, MA.
For homeowners, there’s good news in that home values are expected to continue to appreciate. According to the latest quarterly Arch MI Risk Index, a statistical model based on leading housing market indicators, the average probability of experiencing home price declines remains unusually low, at 5 percent. The shortage of homes for sale means that the likelihood of local housing busts, or even mild price declines, over the next two years is near historic lows. This reflects a broad array of favorable fundamentals, such as a healthy job market, relatively low interest rates and home prices in line with incomes compared to their historical norms, at least in the majority of American cities.
“If mortgage rates and home prices continue to rise as expected, affordability will get hammered by year-end as demand continues to outstrip supply,” said Dr. Ralph G. DeFranco, Global Chief Economist-Mortgage Services, Arch Capital Services Inc. “A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers. Whether someone is looking to upgrade or purchase their first home, the window to buy before rates jump again is probably closing fast.”
The latest HaMMR also discusses the impact of tariffs on the housing market. While it will lead to slightly higher construction costs and a shifting of the relative economics of making steel, aluminum and final consumer goods inside and outside the U.S., it shouldn’t dent the housing market overall. Steel frames account for only a small percentage of new single-family houses, making the tariffs’ direct impact on the total cost of a new home relatively minor.
Commentary resources:
- The Housing and Mortgage Market Review (HaMMR) is posted at archmi.com/hammr. The Spring 2018 edition summarizes current U.S. housing market conditions and the effects of the latest tariffs on the housing market.
- Dr. DeFranco will host Housing Update webinars discussing market conditions and the details of HaMMR on April 19 and 20, 2018. Registration is free at archmi.com/hammr.
- Detailed and interactive regional graphs and maps showing home prices and estimates of over-/undervaluation are also available at archmi.com/hammr by clicking the HPI Charts link.
At the state level, Alaska, North Dakota, Wyoming and West Virginia have the highest probability of home price declines over the next two years. Their economies are weaker than the country overall due to the lingering effects of the unwinding of the energy-extraction boom but are expected to improve over time. According to the Arch MI Risk Index, Florida and Texas make the list of riskiest states because their home prices are higher than expected compared to the historical relationship between price and income. Given their strong housing markets, they are likely to continue moving up the list as their affordability deteriorates.
Spring 2018 Arch MI Risk Index
States with the Highest
Risk Index Values (Probability of Price Decline Times 100)
| State | Risk Index |
Change Since |
||||
| Alaska | 28 | -3 | ||||
| North Dakota | 27 | -11 | ||||
| Wyoming | 25 | -12 | ||||
| West Virginia | 24 | 3 | ||||
| Florida | 15 | 12 | ||||
| Connecticut | 14 | 6 | ||||
| Oklahoma | 14 | -7 | ||||
| Texas | 14 | 7 | ||||
| Mississippi | 10 | 0 | ||||
| New Mexico | 10 | -5 | ||||
About Arch MI’s Housing and Mortgage Market Review, Risk Index and Fundamental HVI
The Housing and 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 latest HaMMR, Risk Index, local housing percent over-/undervaluation can be reviewed at archmi.com/hammr.
Fundamental HVI is a statistical model based on the historical relationship between incomes and home prices.
Detailed, interactive regional graphs and maps are available on Arch MI’s website, showing relative over- or undervalued home prices at archmi.com/HPI-Charts-and-Maps.
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 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 home ownership 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.
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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.
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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.
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