How risky does a mortgage insurer see the housing market in its own back yard?
Not very. The housing markets in Winston-Salem and Greensboro-High Point appear to be healthy and low risk, according to Arch MI’s Winter 2018 Housing and Mortgage Market Review.
Arch MI, whose own Greensboro headquarters is getting a major makeover, has a keen interest in the housing market as a mortgage insurer — one that emerged from what was United Guaranty. Arch MI’s Risk Index measures home price risk by estimating the probability that home prices in a state or metropolitan area will be lower in two years. The risk index weights economic and housing market factors, including affordability, unemployment rates, economic growth rates, net migration and housing starts. The company has developed a new tool that identifies housing bubbles by analyzing home prices across 50 states and 401 metros, but it’s interesting to see what it found in its home base.
Winston-Salem and Greensboro-High Point both received a risk index score of 2 percent in third quarter 2017, meaning that there’s a 2 percent probability of home price decline in those areas in the next two years. The state of North Carolina received the same score. The average probability of home price decline across America is also low, at 5 percent.
States with the highest risk indexes include Alaska, which received a risk index value of 37, North Dakota, Wyoming and West Virginia. Arch MI said the states with the highest values tended to be energy-related.
According to Arch MI, recent home price appreciation indicates strength in the housing markets. In North Carolina, the most recent annual percent change in home prices is 6.1 percent, while the unemployment rate is 4.1 percent. Greensboro-High Point’s annual percent change in home prices was 5.4 percent, while Winston-Salem’s was 3.1 percent.
To detect possible housing bubbles, Arch MI developed a Fundamental Home Value Index. The Fundamental HVI is an estimate of the underlying economic value to which home prices tend to gravitate when not overly influenced by short-term factors, fads or unrealistic expectations. The Fundamental HVI is used with the Home Price Index to determine an area’s over or under-valuation. Housing bubbles can be tied to high levels of overvaluation.
Arch MI found that, In third quarter 2017, Winston-Salem was undervalued by 3.79 percent and Greensboro-High Point was undervalued by 0.67 percent, while North Carolina had an overvaluation of 3.91 percent. Overall, the U.S. has a slight overvaluation of 3.16 percent.
For the rest of the decade, Arch MI predicts that home prices will continue to increase nationwide, mortgage rates will also increase and purchase originations will grow 10 to 15 percent each year. But Arch MI said it’s too soon to worry about a housing bubble.