Arch Mortgage Insurance released the latest edition of their Housing and Mortgage Market Review this week, and according to the report, Texas and North Dakota remain the most at risk of home price declines over the next two years.
“For most states, the average risk of home price declines over the next two years remains low; 82% of states have an Arch MI Risk Index less than or equal to 8%,” states one of the report’s authors, Dr. Ralph DeFranco, senior director of risk analytics and pricing with Arch MI. “However, the top oil- and gas-producing states remain the most at-risk – North Dakota, Texas, Louisiana, Alaska and Oklahoma – with roughly a 1 in 3 chance of price declines, on the outside chance energy prices will fall materially from now.”
The newly redesigned report outlines that as the nation’s top oil and gas producing states, their exposure to recent shocks experienced in the sector places them in them both in the moderate risk category. For most other states, the average risk of home price declines over the next two years remains low.
“Our baseline assumption is oil prices will increase or stay flat,” continues DeFranco, “while the U.S. economy continues to add several million jobs a year.”
North Dakota has the highest Risk Index value, with a 38% chance of seeing home price declines, particularly in its western energy extraction boomtowns. The state has experienced unusually rapid home price appreciation and population growth in recent years, putting it most at risk if energy prices fall.
No states ranked above 50, the point where home prices are more likely to decline than rise.
An estimate of home prices relative to expected home prices (based on a simple model of the historical relationship between per capita income and home prices) shows that Houston is currently about 21% above historic averages, higher than any time since 1983, when it peaked at 28% above trend. San Antonio is about 15% above trend, Dallas 17%, and Austin 23%.
“If any price declines do occur, they will likely be small, due to economic strength in non-energy sectors like health care and tech,” states DeFRanco, “the fact that low interest rates make housing more affordable than in the past, and home values are still cheap compared to many coastal cities.”
First the good news: the average risk of home price declines over the coming two years remains low. The bad news? If you live in an oil-producing state, you are at risk of a price decline.