Housing and Mortgage Market Review

Transcription

1 Housing and Mortgage Market Review Fall 2017 IN THIS ISSUE Is a Housing Bubble Forming in the US? (Page 1) Home Prices Not as High as They Seem (Page 4) Are America s Hottest Housing Markets Overheating? (Page 6) Arch MI State-Level Risk Index (Page 8) Housing and Mortgage Market Indicators (Page 10) Arch MI Risk Index for the 50 Largest MSAs (Page 18) CREATED BY Ralph DeFranco, Ph.D. Global Chief Economist Mortgage Services Arch Capital Services Inc. Manhong Feng, Ph.D. Senior Economist Mortgage Services Arch Capital Services Inc. Marisa Rawling Senior Marketing Communications Manager Arch Mortgage Insurance Company Henry Nguyen Senior Graphic Designer Arch Mortgage Insurance Company Is a Housing Bubble Forming in the US? Market Research Points to No. Anyone waiting for home prices to fall before buying is likely to be disappointed. The hottest markets are being propelled by job growth that is increasing faster than the new supply of homes and that isn t likely to change anytime soon. Housing markets across the nation remain healthy and are projected to stay that way through 2018 at least. The Arch MI Risk Index, a statistical model based on recent housing market indicators, suggests that the average of probable home price declines in America s 401 largest cities remains unusually low at 4 percent. This reflects broad-based favorable fundamentals, such as a tightening job market, relatively low interest rates, a low number of homes for sale and an overall housing shortage. The Arch MI Risk Index estimates the probability that home prices will be lower in two years, times 100. The higher the Risk Index value, the more likely an area is to experience slower than normal economic and home price growth, and the more likely it is to see home price declines. The Arch MI Risk Index uses a statistical model based on regional factors such as unemployment rates, affordability, net migration, housing starts, the percentage of delinquent mortgages, the difference between actual and estimated fundamental home prices (based on income). We make manual adjustments for unmodeled factors, such as energy prices. Risk Index values for 401 cities are available on the Risk Index link at archmi.com/hammr.

2 Housing and Mortgage Market Review Latest Arch MI Risk Index Overall, risk remained concentrated in energy-extraction regions. In the most recent quarter, we saw some improvement in North Dakota and Oklahoma thanks to a gradual recovery of energy prices, but a worsening of risk in Alaska due to continued weak employment, primarily in the energy and government sectors. Alaska has the highest likelihood of seeing house price declines (39 percent), followed by North Dakota (33 percent) and Wyoming (31 percent). Overall, risk remains low in the top 50 metros (pages 18-19). Of the 50 metros with the largest populations, the highest risk scores indicate about a one in three chance of lower prices in two years, led by Fort Lauderdale-Pompano Beach-Deerfield Beach, Florida (35 percent) and Nashville- Davidson--Murfreesboro--Franklin, Tennessee (35 percent). This was mainly due to home prices growing faster than incomes, which is hurting affordability. 2 Arch Mortgage Insurance Company

3 States With the Highest Risk Index Values RI 2017Q2 Change in Qtr. ALASKA NORTH DAKOTA WYOMING WEST VIRGINIA OKLAHOMA LOUISIANA NEW MEXICO MISSISSIPPI RI 2017Q Change in Qtr RISKIEST 5 STATES SUMMARY OF CURRENT CONDITIONS DRIVERS OF FROM PRIOR QUARTER Alaska North Dakota Wyoming In recession. Oil production has been falling since the early 1990s. No end in sight for the downturn in employment, with the highest unemployment rate of any state. Oil production and agriculture are pulling the state out of recession. In recession due to 20 percent drop in mining/drilling employment. Population growth is negative and home price growth is the second lowest in the nation. Weakening labor market. Steady growth in employment. Continued tepid employment growth. West Virginia Energy and manufacturing remain weak. Labor market seems to have bottomed out. Oklahoma Economy continues to recover. Growth in home prices accelerated in more recent quarter. Employment appears to improve. Arch Mortgage Insurance Company 3

4 Housing and Mortgage Market Review Home Prices Not as High as They Seem It is being widely reported that overall U.S. home prices have recovered from the crash and are hitting new all-time highs. While technically true, a far better way to compare prices over time is to first adjust the data for inflation. Based on today s purchasing power of the dollar, national home prices remain 10 percent below their prior peak (see the chart on the opposite page). While inflation is easy to ignore in the short term, since it has been running at under 2.0 percent a year, over longer horizons the steady erosion in value adds up. Overall, prices of a broad selection of consumer goods now cost 20 percent more than they did in 2007 (based on the Consumer Price Index). Real HPI is a far better way to compare home prices over time than the commonly reported nominal House Price Index (HPI) since it accounts for the fact that one dollar today doesn t buy as much as it once did. We all suffer to some extent from what economists call price illusion, which is the tendency to think in nominal (the face value of money) values, rather than in real terms, making comparisons difficult. Nominal home price growth is also important, since it matters for things like the current home owner s ability to refinance and people s tendency to delay selling until prices recover to at least the level of what they originally paid for their home. While home prices are increasing in every state, the recovery has been uneven, with 14 states still below their prior peaks. A map on page 12 shows the cumulative (nominal) change in home prices for each state compared to their prior peaks during (which varies by state). Of the 401 MSAs we studied, 46 percent are still below their prior (nominal) peak. On the flip side, about 10 percent of U.S. metros are red-hot, with prices 20 percent or higher than their prior peak. We are continuing to see the majority of job growth occurring in the largest and most globally integrated cities, particularly those with world-class universities and/or a large base of existing high-tech firms, with slower growth in many, but not all, smaller areas. Hot cities are becoming denser due to revitalized city centers, while some rural areas are becoming even more rural as young people move for work or leave for college and don t return. The map on page 12 shows the cumulative (nominal) change in home prices for each state compared to their prior peaks during Home prices have increased in every state, with substantial variation reflecting local supply and demand conditions. Prices have been rising the most in Colorado, Idaho and the Great Northwest; areas such as New England and some energy-extraction states (Alaska, Louisiana, West Virginia and Wyoming) are growing more slowly. Home prices have been growing the fastest in the lower-priced entry home market, due to limited construction at the lower end and fewer people moving up to more expensive homes than in the past. Regional Notes Apart from Boston, the Northeast has been relatively weak. Employment growth has been slow due to low population growth and a limited supply of new workers. This region is the most exposed to European economic weakness but fortunately, overseas growth is accelerating. Illinois and Connecticut are not in recession but suffer from out-migration and corrosive fiscal problems. California remains a national economic growth leader, but growth is slowing in high-wage industries and techstartup valuations appear stretched. Florida will remain the best economic performer in the South for at least another year, led by tourism, residential and public construction. The state continues to set tourism records, with 113 million visitors spending $109 billion last year. In-migration has picked up. 4 Arch Mortgage Insurance Company

5 Adjusted for Inflation, Home Prices Are Cheaper Now Than in Q2 Nominal HPI was 6% higher than the prior peak. 17Q2 Real HPI was 10% lower than the prior peak. FHFA All-Transactions Nominal House Price Index (1980Q1=100, SA) FHFA-All Transactions Real House Price Index (1980Q1=100, SA) SA stands for Seasonally Adjusted. Arch Mortgage Insurance Company 5

6 Housing and Mortgage Market Review Are America s Hottest Housing Markets Overheating? Several housing markets are experiencing home price growth rocketing upwards by 10 percent or more a year. What is going on here and has it gone too far? The main drivers are strong job and population growth and a shortage of starter homes for sale, with no clear end in sight. While it s not directly observable whether prices have gone too high, since that depends on the intrinsic value of housing, we have developed two measures that suggest caution is more warranted in some markets than in others. The following table shows the 10 hottest markets (as measured by the Federal Home Finance Agency (FHFA) All-Transactions Home Price Index (HPI)) among America s 100 largest metros. Home price growth accelerated in these cities from the year before, with the exceptions of Denver and Portland. The growth in the total number of jobs in these cities over the past year exceeded the national average, but just barely so in Sacramento. The unemployment rate for Denver is only 2.3 percent, 2.6 percent in Nashville (See pages 18-19) and is below the national average in all of these cities except for the two cities in California. AMERICA S Hottest Housing Markets HPI GROWTH PAST YEAR POPULATION 1-YR. % EMPLOYMENT 1-YR. % % OVER-/ UNDER- VALUED CURRENT MEDIAN DTI MEDIAN DTI VS. AVG United States 6.4% 0.7% 1.5% 2% 25% -5% Nashville--Davidson--Murfreesboro--Franklin, TN 10.3% 2.0% 2.5% 17% 23% -2% Grand Rapids-Wyoming, MI 10.3% 0.9% 2.1% 4% 17% -2% Sacramento--Roseville--Arden-Arcade, CA 10.4% 0.6% 1.5% 5% 30% -1% Stockton-Lodi, CA 10.6% 0.8% 1.6% 2% 34% 3% Portland-Vancouver-Hillsboro, OR-WA 10.8% 2.1% 2.5% 16% 32% 5% Tampa-St. Petersburg-Clearwater, FL 11.3% 1.7% 3.1% 17% 24% 0% Denver-Aurora-Lakewood, CO 11.3% 1.3% 1.7% 27% 32% 4% Dallas-Plano-Irving, TX 11.6% 2.0% 3.1% 36% 25% 0% Fort Worth-Arlington, TX 11.7% 2.0% 2.9% 30% 19% -2% Orlando-Kissimmee-Sanford, FL 12.5% 3.1% 3.3% 11% 26% 2% Boise City, ID 12.5% 2.8% 3.7% 23% 23% 0% Tacoma-Lakewood, WA 12.8% 2.0% 2.6% 9% 28% 2% Seattle-Bellevue-Everett, WA 14.0% 2.0% 2.1% 13% 33% 1% 6 Arch Mortgage Insurance Company

7 The supply of homes for sale is very low. The average number of days homes were on the market (available for most cities on the National Association of Realtors (NAR) website) ranged from 37 days in Stockton to 73 days for Orlando. The U.S. average was a near-record low at 69 days. The first valuation measure (Percentage Over-/Undervalued in the table) compares home prices to what a regression model expects, given the historical relationship between home prices and incomes since It suggests that Denver, Boise and Dallas/Fort Worth are very expensive relative to their past, while Sacramento, Stockton and Grand Rapids are near fair value (or their historical norms). We use per-capita income because (a) over long periods of time prices tend to track incomes and (b) prices cannot grow faster than incomes forever since that would eventually leave no money left for anything but housing. This measure is more a long-run through the cycle measure since it doesn t account for changes in interest rates (with the advantage of not being affected by the whims of the financial markets). Unfortunately, large deviations from trend are common (particularly in spaceconstrained areas) either because fundamentals undergo a permanent change or because it takes many years before supply and demand come into balance. This measure is a powerful predictor in the Arch MI Risk Index, along with employment and economic growth. Our second valuation measure (introduced in the Winter 2017 HaMMR) is the Median Debt-to-Income Ratio (DTI) : the amount of pre-tax income the median household would need to cover the payment on the median house. Note this is not based on actual loan DTI ratios and doesn t include non-mortgage debt payments, but does vary with interest rates. Comparing today s home values to a period we considered normal (from 1987 through 2004) finds that Denver, Portland and Stockton are the most expensive compared to their pasts, while the other cities look more reasonable. However, none of the cities in the table were as much below normal historical averages as the United States overall. Comparisons to historical valuations are more a starting point than a definitive answer for analyzing housing market risk, since many other supply and demand factors matter as well. Take Denver or Dallas for instance. Both have become far more diversified in the types of employment over the past 20 years and are experiencing large inflows of people from higher-cost areas such as California. Texas business-friendly and low tax policies are attracting large inflows of businesses. Given the positive fundamentals, prices are more likely to continue going up rather than fall back to past levels of affordability. Some of these positive economic factors are reflected in their low Risk Index values in spite of their being expensive relative to their past. Thus, higher values relative to the past don t automatically imply a crash is coming, but it does suggest that if a large economic shock occurs, it could result in larger price declines. In short, the current strength in these hot markets appears to be due to broad-based economic growth and not a bubble. Arch Mortgage Insurance Company 7

8 Housing and Mortgage Market Review Arch MI State-Level Risk Index STATE (Sorted by Risk Ranking, then by Alphabet) RISK RANKING ARCH MI RISK INDEX LATEST 1-YEAR LATEST ANNUAL HOME PRICE % (FHFA HPI) 1 YEAR EARLIER VOLATILITY LATEST UNEMPLOYMENT RATE 1-YEAR Alaska Moderate Normal North Dakota Moderate Normal West Virginia Moderate High Wyoming Moderate Normal Louisiana Low Normal New Mexico Low Low Oklahoma Low Low Alabama Minimal Low Arizona Minimal Normal Arkansas Minimal Low California Minimal Low Colorado Minimal High Connecticut Minimal Normal Delaware Minimal Low District Of Columbia Minimal Normal Florida Minimal Low Georgia Minimal High Hawaii Minimal Normal Idaho Minimal High Illinois Minimal Low Indiana Minimal Normal Iowa Minimal Low Kansas Minimal High Kentucky Minimal Low Maine Minimal Low Maryland Minimal Normal Massachusetts Minimal Normal Michigan Minimal Normal Minnesota Minimal High Mississippi Minimal Low Missouri Minimal Low Montana Minimal Low Nebraska Minimal Normal Nevada Minimal Normal New Hampshire Minimal Normal New Jersey Minimal Low New York Minimal Low North Carolina Minimal Normal Ohio Minimal High Oregon Minimal Normal Pennsylvania Minimal Low Rhode Island Minimal Normal South Carolina Minimal Low South Dakota Minimal Low Tennessee Minimal Normal Texas Minimal Normal Utah Minimal Normal Vermont Minimal Normal Virginia Minimal Normal Washington Minimal Normal Wisconsin Minimal Normal Pop. Weighted Average Minimal Low LONG RUN AVG. 8 Arch Mortgage Insurance Company

9 GROSS STATE PRODUCT PER CAPITA 2017Q2 1-YEAR % SINGLE-FAMILY HOUSING STARTS PER 1000 PEOPLE 2017Q2 1-YEAR % 2017Q2 (THS.) POPULATION 1-YEAR % $ 68, $ 68, $ 39, , $ 64, $ 50, , $ 44, , $ 46, , $ 41, , $ 43, , $ 40, , $ 65, , $ 57, , $ 73, , $ 73, $ 185, $ 44, , $ 50, , $ 58, , $ 39, , $ 61, , $ 51, , $ 56, , $ 52, , $ 44, , $ 44, , $ 62, , $ 73, , $ 48, , $ 60, , $ 35, , $ 49, , $ 43, , $ 60, , $ 49, , $ 57, , $ 64, , $ 75, , $ 50, , $ 53, , $ 55, , $ 56, , $ 54, , $ 42, , $ 55, $ 49, , $ 57, , $ 50, , $ 49, $ 58, , $ 63, , $ 53, , $ 50, , Explanatory Notes The Arch MI Risk Index, both at the state and Metropolitan Statistical Area (MSA) level, estimates the probability of home prices being lower in two years, times 100. For example, a score of 20 means the model estimates a 20 percent chance the FHFA All-Transactions Regional HPI will be lower two years from the date of the input data release. The Risk Ranking column is a mapping of the Risk Index values into buckets, while the next column shows the actual Risk Index values. Home Price Changes: The first column is the most recent year-over-year percentage change in the FHFA All-Transactions HPI. The next column is the annual HPI change from a year earlier. The Volatility column (appearing in the Arch MI Risk Index for the 50 Largest MSAs on pages 18-19) is our ranking based on the standard deviation of the HPI since Recent price appreciation is an indicator of strength in the local housing market and is generally correlated with near-term future price changes. Unemployment Rates are seasonally adjusted statewide or MSA-wide unemployment rates released by the U.S. Bureau of Labor Statistics. Gross State Product/Gross Metro Product is from a Moody s Analytics estimation, which is based on gross product data released by the U.S. Bureau of Economic Analysis. S.F. Housing Starts are quarterly averages of single-family housing starts data released by the U.S. Census Bureau. Population is from a Moody s Analytics estimation, which is based on population data released by the U.S. Census Bureau. Arch Mortgage Insurance Company 9

10 Housing and Mortgage Market Review Housing and Mortgage Market Indicators ANNUAL PERCENTAGE IN HOME PRICES Home prices rose 5.8 percent yearover-year, according to the latest (June 2017) Standard & Poor s (S&P)/ Case-Shiller National Home Price Index, and 6.6 percent according to the FHFA Purchase-Only Index. The FHFA index is based on GSE loans, while the Case-Shiller index uses a broader selection of loans and different estimation methods. The median home price was up 6.4 percent in July from a year earlier, according to NAR. Sources: CoreLogic Case-Shiller/FHFA/ NAR/Moody s Analytics/Arch MI Real Estate: FHFA House Price Index - Purchase-only; (Index 1991Q1=100; SA) Real Estate: FHFA House Price Index - New and existing buildings - All transactions; (Index 1980Q1=100; SA) S&P Dow Jones Indices LLC; CoreLogic, Inc.: S&P CoreLogic Case-Shiller Home Price Indices [CSUS-SA] 12-MONTH IN HOME PRICES BY STATE The year-over-year change in the FHFA All-Transactions HPI as of 2017 Q2 was positive in all states, but varied substantially across the country. The fastest growth continued to be in Washington (11.4 percent), Colorado (10.4 percent), Idaho (10.4 percent), and Florida (9.7 percent). The slowest growth was in Alaska (0.7 percent), West Virginia (1.4 percent) and Wyoming (1.1 percent). Please see the State-Level tables on pages 8-9 for specific values. Sources: FHFA/Moody s Analytics/Arch MI 10 Arch Mortgage Insurance Company

11 Housing and Mortgage Market Indicators HOUSING AFFORDABILITY INDEX Housing affordability worsened due to higher home prices and interest rates, and the trend is likely to continue. For the nation, affordability is still very favorable compared to pre-crisis. We measure affordability using the Median Debt-to-Income (DTI) payment, which is defined as the percentage of the median household s earnings needed to cover mortgage payments on the median house. Our payment calculations are based on a 10 percent down payment, annual expenses at 1.75 percent of the initial home price (insurance, dues and property taxes) and the prevailing 30-year fixed mortgage rate, plus 0.75 percent to cover mortgage insurance, risk add-ons, etc.) Miami Houston California United States Sources: Arch MI UNEMPLOYMENT RATE BY COUNTY (SEASONALLY ADJUSTED) While the national unemployment rate remains low, the picture is far more varied at the county level. Many rural areas in the Appalachian region remain weak from the drop in coal prices due to competitive pressure from cheap natural gas. Some rural areas in the Deep South and the West remain weak, as most employment gains have been in the larger cities. Some areas have been hurt by the drop in energy prices in oil- and gas-producing areas in Alaska, Montana, Louisiana, New Mexico, Oklahoma and Texas. Sources: U.S. Bureau of Labor Statistics/ Moody s Analytics/Arch MI Arch Mortgage Insurance Company 11

12 Housing and Mortgage Market Review Housing and Mortgage Market Indicators FHFA ALL-TRANSACTIONS HOUSE PRICE INDEX PERCENTAGE FROM PRIOR PEAK ( ) House prices in the United States have increased steadily since they bottomed in 2012 and have surpassed their prior peak levels; however, the growth is very unbalanced across states. The largest cumulative growth since house price peak during was in North Dakota (47 percent), followed by Colorado (44 percent) and Texas (39 percent). As of the second quarter of 2017, 15 states had house prices lower than their prior peaks. Nevada house prices were 20 percent lower and Connecticut 15 percent lower. Sources: FHFA/Moody s Analytics/Arch MI ANNUAL PERCENTAGE IN PER CAPITA INCOME The year-over-year change in per-capita income was strongest in Hawaii (4.1 percent), followed by New Hampshire (3.9 percent) and Maine (3.8 percent). Three states experienced negative year-over-year growth in per-capita income: Alaska (-2.1 percent), Wyoming (-1.8 percent) and North Dakota (-1.8 percent). Sources: Moody s Analytics/Arch MI 12 Arch Mortgage Insurance Company

13 Housing and Mortgage Market Indicators LABOR MARKET INDICATORS There was a record amount of job openings in July in the United States and the job hires rate was 3.8 percent, much higher than the historical average level of 3.5 percent. The quits rate stood at 2.2 percent, well above the historical average of 1.9 percent, and the layoffs and discharges rate ticked up from historical lows at 1.2 percent in July. Sources: U.S. Bureau of Labor Statistics/ Moody s Analytics/Arch MI Job openings rate - Total nonfarm; (%; SA) Quits rate - Total nonfarm; (%; SA) Job hires rate - Total nonfarm; (%; SA) Layoffs and discharges rate - Total nonfarm; (%; SA) YEAR-OVER-YEAR PERCENTAGE IN TOTAL EMPLOYMENT On a year-over-year basis, total employment has been growing since late For the United States, the annual growth rate in total employment is between 1.0 and 2.0 percent for most of the time. The growth rate in Texas has been more volatile, hitting 3.7 percent in late 2014 and 1.0 percent in mid In July, 2.4 percent more new jobs were created in Texas versus the same period a year ago. Sources: U.S. Bureau of Labor Statistics/ Moody s Analytics/Arch MI United States New York Texas Arch Mortgage Insurance Company 13

14 Housing and Mortgage Market Review Housing and Mortgage Market Indicators UNEMPLOYMENT RATE (SEASONALLY ADJUSTED) The National (seasonally adjusted) unemployment rate remained unusually low in August at 4.4 percent. It was 4.9 percent a year earlier. The unemployment rate is the number of unemployed people who are actively looking for work divided by the total number of people in the workforce. U-6 is underemployment, a broader measure that adds to the unemployed part-time workers who want to work full-time and discouraged workers who say they would work but are not currently looking. This stands at 8.6 percent, much lower than its historic average of 10.3 percent. Sources: U.S. Bureau of Labor Statistics/ Moody s Analytics/Arch MI Unemployment Rate U-6: unemployed + involuntary part-time + discouraged workers MAX., MIN. AND CURRENT UNEMPLOYMENT RATE BY STATE (SEASONALLY ADJUSTED) The chart below shows the current unemployment rate for each state, along with the range from the beginning of 1976 until now. Alaska (7.0 percent) replaced New Mexico as the state with the highest unemployment rate, followed by the District of Columbia (6.4 percent) and New Mexico (6.3 percent), while North Dakota (2.2 percent) has the lowest unemployment rate. Sources: U.S. Bureau of Labor Statistics/ Moody s Analytics/Arch MI Max. UR Min. UR Current UR 14 Arch Mortgage Insurance Company

15 Housing and Mortgage Market Indicators UNEMPLOYMENT RATE BY STATE (SEASONALLY ADJUSTED) The Midwest had the lowest unemployment rates in the nation, often below 4.0 percent, while Massachusetts, Rhode Island and Texas were at the national level (4.3 percent). At 7.0 percent, Alaska had the highest unemployment rate, followed by the District of Columbia (6.4 percent) and New Mexico (6.3 percent). Sources: U.S. Bureau of Labor Statistics/Moody s Analytics/Arch MI 12-MONTH IN UNEMPLOYMENT RATE BY STATE (SEASONALLY ADJUSTED) This map shows the change in unemployment rates by state in July from a year earlier. Unemployment increased in Massachusetts (0.7 percent), Delaware (0.4 percent) and the District of Columbia (0.4 percent). The biggest improvements were in Indiana, Tennessee and Wyoming (all down by -1.4 percent). Sources: U.S. Bureau of Labor Statistics/Moody s Analytics/Arch MI Arch Mortgage Insurance Company 15

16 Housing and Mortgage Market Review Housing and Mortgage Market Indicators SINGLE-FAMILY HOUSING STARTS Single-Family Housing Starts increased 11.0 percent nationally from a year ago to 856,000 units (seasonally adjusted annual rate) in July. Smoothing out volatile monthly data (by taking a 12-month moving average) finds that multi-family starts are running at around 369,000 a year, 7.0 percent lower than a year ago. Sources: U.S. Census Bureau/Moody s Analytics/Arch MI Single-Family Multi-Family YEAR-OVER-YEAR IN HOUSING STARTS The growth in single-family housing starts is weakest in North Dakota (down 29 percent over a year ago), New Jersey (-9.0 percent), Oklahoma (-3.0 percent) and in New York (-3.0 percent). The strongest areas are in the middle and west of the country. California and Iowa housing starts both increased by 22 percent, followed by Hawaii (20 percent), and South Dakota (18 percent). All values are the changes in the 12-month moving average, to lessen volatility due to weather, etc. Sources: U.S. Census Bureau/Moody s Analytics/Arch MI 16 Arch Mortgage Insurance Company

17 Housing and Mortgage Market Indicators SINGLE-FAMILY HOME SALES Sales of existing single-family homes in July came in at 4.84 million units (after annualizing the monthly number), an increase of 1.7 percent compared to the same time last year. Sales of newly constructed homes were 571,000 units (annualized rate), down 8.9 percent from a year ago. Sources: NAR/Census Bureau/Moody s Analytics/Arch MI Existing New MONTHS SUPPLY OF HOMES FOR SALE The months supply of existing singlefamily homes for sale (total current listings last month s sales) was at 4.2 months in July, compared to 4.7 months at the same time a year ago. The months supply of new homes for sale, shown in green, increased to 5.8 months in July, compared to 4.5 months a year earlier. Sources: NAR/Moody s Analytics/Arch MI Existing New Arch Mortgage Insurance Company 17

18 Housing and Mortgage Market Review Arch MI Risk Index for the 50 Largest MSAs 50 LARGEST METROPOLITAN Statistical Areas Sorted by Risk Ranking, then State, then MSA ST RISK RANKING 2017Q2 ARCH MI RISK INDEX 1-YR. LONG RUN AVG. HPA 1-YR. 2017Q2 % HOME PRICE HPA 1-YR. 2016Q1 HPA VOLATILITY Fort Lauderdale-Pompano Beach-Deerfield Beach, FL FL Moderate Low Nashville-Davidson--Murfreesboro--Franklin, TN TN Moderate Low Miami-Miami Beach-Kendall, FL FL Low Low West Palm Beach-Boca Raton-Delray Beach, FL FL Low Low Austin-Round Rock, TX TX Low Normal Phoenix-Mesa-Scottsdale, AZ AZ Minimal Low Anaheim-Santa Ana-Irvine, CA CA Minimal Low Los Angeles-Long Beach-Glendale, CA CA Minimal Low Oakland-Hayward-Berkeley, CA CA Minimal Normal Riverside-San Bernardino-Ontario, CA CA Minimal Low Sacramento--Roseville--Arden-Arcade, CA CA Minimal Low San Diego-Carlsbad, CA CA Minimal Low San Francisco-Redwood City-South San Francisco, CA CA Minimal Normal San Jose-Sunnyvale-Santa Clara, CA CA Minimal Normal Denver-Aurora-Lakewood, CO CO Minimal Normal Washington-Arlington-Alexandria, DC-VA-MD-WV DC Minimal Normal Jacksonville, FL FL Minimal Normal Orlando-Kissimmee-Sanford, FL FL Minimal Low Tampa-St. Petersburg-Clearwater, FL FL Minimal Normal Atlanta-Sandy Springs-Roswell, GA GA Minimal Normal Chicago-Naperville-Arlington Heights, IL IL Minimal Low Indianapolis-Carmel-Anderson, IN IN Minimal Normal Boston, MA MA Minimal Low Cambridge-Newton-Framingham, MA MA Minimal Low Baltimore-Columbia-Towson, MD MD Minimal Low Detroit-Dearborn-Livonia, MI MI Minimal Low Warren-Troy-Farmington Hills, MI MI Minimal Low Minneapolis-St. Paul-Bloomington, MN-WI MN Minimal Normal Kansas City, MO-KS MO Minimal Normal St. Louis, MO-IL MO Minimal Low Charlotte-Concord-Gastonia, NC-SC NC Minimal Low Newark, NJ-PA NJ Minimal Low Las Vegas-Henderson-Paradise, NV NV Minimal Normal Nassau County-Suffolk County, NY NY Minimal Low New York-Jersey City-White Plains, NY-NJ NY Minimal Low Cincinnati, OH-KY-IN OH Minimal Low Cleveland-Elyria, OH OH Minimal Normal Columbus, OH OH Minimal Normal Portland-Vancouver-Hillsboro, OR-WA OR Minimal Low Montgomery County-Bucks County-Chester County, PA PA Minimal Low Philadelphia, PA PA Minimal Normal Pittsburgh, PA PA Minimal Normal Providence-Warwick, RI-MA RI Minimal Low Dallas-Plano-Irving, TX TX Minimal Normal Fort Worth-Arlington, TX TX Minimal Low Houston-The Woodlands-Sugar Land, TX TX Minimal Normal San Antonio-New Braunfels, TX TX Minimal Normal Virginia Beach-Norfolk-Newport News, VA-NC VA Minimal Normal Seattle-Bellevue-Everett, WA WA Minimal Normal Milwaukee-Waukesha-West Allis, WI WI Minimal Low 18 Arch Mortgage Insurance Company

19 50 LARGEST METROPOLITAN Statistical Areas Sorted by Risk Ranking, then State, then MSA UNEMPLOYMENT RATE 2017Q1 1-YR. LONG RUN AVG. GROSS METRO PRODUCT PER CAPITA 2017Q1 1-YR. % SINGLE-FAMILY HOUSING STARTS PER 1000 PEOPLE 2017Q1 1-YR. % POPULATION Fort Lauderdale-Pompano Beach-Deerfield Beach, FL $ 50, , Nashville-Davidson--Murfreesboro--Franklin, TN $ 61, , Miami-Miami Beach-Kendall, FL $ 50, , West Palm Beach-Boca Raton-Delray Beach, FL $ 50, , Austin-Round Rock, TX $ 62, , Phoenix-Mesa-Scottsdale, AZ $ 48, , Anaheim-Santa Ana-Irvine, CA $ 87, , Los Angeles-Long Beach-Glendale, CA $ 73, , Oakland-Hayward-Berkeley, CA $ 68, , Riverside-San Bernardino-Ontario, CA $ 42, , Sacramento--Roseville--Arden-Arcade, CA $ 61, , San Diego-Carlsbad, CA $ 72, , San Francisco-Redwood City-South San Francisco, CA $ 128, , San Jose-Sunnyvale-Santa Clara, CA $ 103, , Denver-Aurora-Lakewood, CO $ 65, , Washington-Arlington-Alexandria, DC-VA-MD-WV $ 81, , Jacksonville, FL $ 49, , Orlando-Kissimmee-Sanford, FL $ 55, , Tampa-St. Petersburg-Clearwater, FL $ 50, , Atlanta-Sandy Springs-Roswell, GA $ 59, , Chicago-Naperville-Arlington Heights, IL $ 69, , Indianapolis-Carmel-Anderson, IN $ 62, , Boston, MA $ 100, , Cambridge-Newton-Framingham, MA $ 81, , Baltimore-Columbia-Towson, MD $ 68, , Detroit-Dearborn-Livonia, MI $ 49, , Warren-Troy-Farmington Hills, MI $ 60, , Minneapolis-St. Paul-Bloomington, MN-WI $ 67, , Kansas City, MO-KS $ 58, , St. Louis, MO-IL $ 56, , Charlotte-Concord-Gastonia, NC-SC $ 58, , Newark, NJ-PA $ 74, , Las Vegas-Henderson-Paradise, NV $ 50, , Nassau County-Suffolk County, NY $ 67, , New York-Jersey City-White Plains, NY-NJ $ 82, , Cincinnati, OH-KY-IN $ 59, , Cleveland-Elyria, OH $ 61, , Columbus, OH $ 63, , Portland-Vancouver-Hillsboro, OR-WA $ 66, , Montgomery County-Bucks County-Chester County, PA $ 75, , Philadelphia, PA $ 56, , Pittsburgh, PA $ 66, , Providence-Warwick, RI-MA $ 53, , Dallas-Plano-Irving, TX $ 72, , Fort Worth-Arlington, TX $ 53, , Houston-The Woodlands-Sugar Land, TX $ 67, , San Antonio-New Braunfels, TX $ 50, , Virginia Beach-Norfolk-Newport News, VA-NC $ 58, , Seattle-Bellevue-Everett, WA $ 94, , Milwaukee-Waukesha-West Allis, WI $ 60, , Q1 (THS.) 1-YR. % Arch Mortgage Insurance Company 19

20 Cautionary Statement: Statements in this document that relate to future plans, events or performance are forward-looking statements. These forward-looking statements include our expectations with respect to national and regional economic activity, employment trends, consumer spending and borrowing, interest rates, home sales, housing starts, population growth, and price trends as well as other trends in housing, financial and mortgage markets. Readers are cautioned that forward-looking statements by their nature involve risk and uncertainty because they relate to events and circumstances that will occur in the future. Many factors could cause actual results and developments to differ materially from those expressed or implied by forward-looking statements, such as different than expected levels and growth rates of national or regional economic activity; changes in monetary and fiscal policy, sources and uses of bank liquidity, and credit and other market disruptions; fluctuations in oil and gas prices; natural and man-made disasters; changes in international economic and financial conditions; changes in interest rates, lending standards, housing prices, and employment rates; foreclosure trends, regulatory and legislative developments; and other factors identified in Arch Capital Group Ltd. s ( Arch ) filings with the U.S. Securities and Exchange Commission. From time to time, Arch Capital posts additional financial information and presentations, including information about Arch MI, to archcapgroup.com, and Arch MI posts information about its business to archmi.com, and investors and other recipients of this information are encouraged to check these websites. Arch MI undertakes no obligation to update forward-looking statements. ARCH MORTGAGE INSURANCE COMPANY 230 NORTH ELM STREET GREENSBORO NC ARCHMI.COM 2017 Arch Mortgage Insurance Company, Arch Mortgage Guaranty Company. All Rights Reserved. Arch MI is a marketing term for Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company. The Housing and Mortgage Market Review and Arch MI Risk Index are registered marks of Arch Capital Group (U.S.) or its affiliates. CoreLogic is a registered mark of CoreLogic. Collateral Analytics is a trade mark of Collateral Analytics. Realtors is a registered mark of the National Association of Realtors. MCUS-B