Housing is not in a bubble even though home prices are unlikely to decline in the next two years, according to a new report from Arch MI.
The likelihood of a decrease in home prices over the next two years is only 4%, the latest Risk Index results reported by Arch show. That figure is down from the averages of 6% last year and 8% in 2015.
The growing housing shortage is the driving force behind its expectations of home value increases going forward. The mortgage insurer also pointed to the low supply of housing as more important than other factors that could negatively influence home prices and lending such as low wage growth and higher levels of student debt.
"Housing is not in a bubble relative to incomes or monthly payments, either in a historical or international context," Ralph DeFranco, global chief economist of mortgage services at Arch Capital Services, said in a news release. "Even as homeownership remains out of reach for many people, a growing housing shortage will continue to push up national home prices faster than inflation for the foreseeable future."
Positive fundamentals for the housing market that DeFranco noted include below-normal mortgage rates and employment growth.
While the housing risk remains low nationwide, it still remains elevated in states that have large energy-extraction industries due to the continued low energy prices.
Wyoming and North Dakota were the only two states with "elevated" risk ranks, having risk indexes of 38 and 36, respectively. Those figures improved from the previous quarter's report. The state with the next highest risk index was Alaska, largely because the state has the highest unemployment rate in the country.
