Arch MI’s Latest Housing and Mortgage Market Review Finds Major Recession Fears Overblown

GREENSBORO, N.C.–(BUSINESS WIRE)–Research on how past recessions affected home values shows
current conditions — including a shortfall in housing construction —
likely mean the next recession will have a less severe impact on housing
than the recession in 2008 did, according to the Spring edition of The
Housing and Mortgage Market Review (HaMMR), released today by Arch
Mortgage Insurance Company (“Arch MI”), a leading provider of mortgage
insurance and a wholly owned subsidiary of Arch Capital Group Ltd.

“The ongoing housing shortage is likely to limit
price declines in a recession to 0%–5% for a year or two before home
values start to recover.”

Tweet this

Dr. Ralph G. DeFranco, Global Chief Economist for Arch Capital Services
Inc., stated that housing market trends are now nearly the complete
opposite of conditions in the months prior to the Great Recession.

“A recession is inevitable at some point, but it’s likely to be far less
severe for the housing market than the Great Recession,” he said. “We
estimate that the current market is underbuilt by 1 million or more
homes, buyers are more cautious and loan quality is far higher. In 2007,
conditions were completely flipped: housing was hugely overbuilt,
speculative demand was off the charts and the market was awash with
high-risk loan products. What’s more, home prices were overvalued by 25%
or more then and are closer to expected values now.

“In the 11 recessions recorded over the past 80 years, major price
declines for housing have been more the exception than the rule, with
home values only turning negative once in the five recessions since
1975,” he continued. “The ongoing housing shortage is likely to limit
price declines in a recession to 0%–5% for a year or two before home
values start to recover.”

One challenge facing Millennials, now the largest group of buyers, is
that the price of starter homes is appreciating at a far faster rate
than other types of homes — decreasing affordability for first-time
buyers. “Demand for these lower-priced homes has been increasing, but
builders tend to focus on higher-end houses as construction and lot
costs rise,” DeFranco said.

The quarterly Arch MI Risk Index, a statistical model based on nine
indicators of the health of local housing markets, suggests the
probability of home prices being lower in two years is 9%, an increase
from 6% in the previous HaMMR.

Nationally, the overall risk of a decline in home prices remains better
than the historic average of 17%. Every state is expected to have
positive home price growth over the next two years, continuing recent
trends.

The states with the highest risk of having lower home prices in two
years are North Dakota at 27%, followed by Alaska at 24%, Wyoming at 23%
and Connecticut and West Virginia, both at 22%.

Among the 100 largest metros, the areas with the highest risk of having
lower home prices in two years are Miami, Florida, and San Antonio,
Texas (25%), because of overvalued home prices in those cities. Those
areas are followed by three metros in Connecticut — Bridgeport-Stamford,
Hartford and New Haven (all at 22%) — which have shrinking populations
of homebuyers and a state economy that lags behind the nation.

Commentary resources:

• The Housing and Mortgage Market Review is posted at archmi.com/hammr.
  The Spring 2019 edition focuses on the likelihood of a recession and
  the potential risk to housing, and the crisis of fewer starter homes.
• Dr. DeFranco will host a Housing Update webinar discussing market
  conditions and the details of HaMMR on April 23 and 24. Registration
  is free at archmi.com/hammr.
• Detailed and interactive regional graphs and maps showing home prices
  are also available at archmi.com/hammr
  by clicking on the View
  Our HPI Charts and Maps link.

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, 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.

Cautionary Note Regarding Forward-Looking Statements

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.

Forward-looking statements can generally be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “intend,”
“estimate,” “anticipate,” “believe” or “continue” or their negative or
variations or similar terminology. Forward-looking statements involve
our current assessment of risks and uncertainties. Actual events and
results may differ materially from those expressed or implied in these
statements. A non-exclusive list of the important factors that could
cause actual results to differ materially from those in such
forward-looking statements includes the following: adverse general
economic and market conditions; increased competition; pricing and
policy term trends; fluctuations in the actions of rating agencies and
our ability to maintain and improve our ratings; investment performance;
the loss of key personnel; the adequacy of our loss reserves, severity
and/or frequency of losses, greater than expected loss ratios and
adverse development on claim and/or claim expense liabilities; greater
frequency or severity of unpredictable natural and man-made catastrophic
events; the impact of acts of terrorism and acts of war; changes in
regulations and/or tax laws in the United States or elsewhere; our
ability to successfully integrate, establish and maintain operating
procedures and integrate the businesses we have acquired or may acquire
into the existing operations; changes in accounting principles or
policies; material differences between actual and expected assessments
for guaranty funds and mandatory pooling arrangements; availability and
cost to us of reinsurance to manage our gross and net exposures; the
failure of others to meet their obligations to us and other factors
identified in our filings with the U.S. Securities and Exchange
Commission.

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.

ARCH MORTGAGE INSURANCE COMPANY ^| 230 NORTH ELM
STREET GREENSBORO NC 27401 | ARCHMI.COM MCUS-B0939C-0419

© 2019 Arch Mortgage Insurance 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. HaMMR is a service mark of Arch Capital Group (U.S.) or
its affiliates.