PMI U.S. Market Risk Index scores increased for 34 of the nation's 50 largest Metropolitan Statistical Areas (MSA), resulting, on average, in a greater chance home prices are due for a fall or continued decline, according to Walnut Creek, CA-based PMI Mortgage Insurance Co..

The national average risk index rose from 328 during the third quarter last year to 342 during the fourth quarter with 19 MSAs facing a greater than 50 percent chance that home prices will decline, up from 18 MSAs in the previous quarter.

An index score of 100 indicates a 10 percent chance of a decline in home prices over the next two years. The national average translates into a 34.2 percent chance that home prices will decline in two years.

Greater risks of price declines are concentrated in California and along the Eastern Seaboard. Of the 19 MSAs facing a greater than 50 percent chance of a price decline, eight are located in California, eight are in the Northeast, and two are in Florida.

While year-over-year appreciation remained in the double digits in 14 of the 50 largest MSAs, the rate of appreciation slowed in 43. Three MSAs -- Detroit and neighboring Warren, MI, and Cambridge, MA, -- saw slight year over year price declines.

"Years of rapid appreciation have made homes less affordable in many areas, and that's not sustainable over the long term, so what we are seeing is not unexpected," said Mark F. Milner, Chief Risk Officer of PMI Mortgage Insurance Co.

"Over time, moderating appreciation will bring prices back in line with economic fundamentals, particularly incomes, bringing the market back to a healthy balance," he added.

In early January the National Association of Realtors projected the national median existing-home price for all of 2007 would gain 1.5 percent, rising to $225,300. The median new home price, was projected to grow 3.0 percent in 2007 to $248,900.

The meager appreciation will be due to existing home sales in 2006, at 6.5 million, falling to an estimated 6.42 million sales in 2007, according to NAR's forecast. New home sales in 2006 should tally 1.06 million, with only 957,000 sales projected for 2007.

"We are starting 2007 from a relatively low point, so even with a gradual improvement in sales it'll be pretty much of a wash in terms of annual totals. The good news is that the steady improvement in sales will support price appreciation moving forward," said David Lereah, NAR's chief economist.

PMI concedes, in most regions, the risk of price declines is balanced by strong economic fundamentals. With the exception of the upper Midwest, unemployment remains low in most of the country and job growth is positive.

Of the top 50 MSAs, all but four -- Detroit and Warren, MI, Cleveland, OH, and Indianapolis, IN, -- saw employment growth. New Orleans led the nation in employment growth at 8.37 percent over the past year, followed closely by Las Vegas, NV, at 5.38 percent.

However, some analysts have been more bearish on the housing market's outcome in 2007.

On Jan. 18, financial research firm Susquehanna Financial Group, LLP released a new home report that said, "Completions also provide little sense of inventory relief, as multi-family completions remain elevated, and SF completions only ticked down very slightly. As always, we add a note of caution in reading too much into winter month's numbers and look to the post-Super Bowl time period for better indications of the underlying market trends."

Published: February 5, 2007

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.