Houston is one of the riskiest cities nationally for falling home prices, according to a recent report by a national mortgage insurance company.
Arch Mortgage Insurance Co. ranked Houston No. 2 among 386 metropolitan cities nationally for having the highest risk for declining home prices. The Bayou City has a 38 percent chance of lower home prices in two years. The average risk nationally is 8 percent, according to the Walnut Creek, California-based company.
“ Houston home prices are probably going to come down a little bit,” said Ralph DeFranco, Arch’s senior economist and director of risk analytics and pricing. “ I don’t think it’s going to continue to accelerate.”

Although Houston has a relatively high risk for falling home prices compared to other cities, it’s important to remember that Houston’s risk is considered “moderate,” according to Arch’s risk model. Houston still is far from reaching the 90 percent risk level that Florida and other parts of the country saw right before the 2008 housing crash, DeFranco said.
“Houston is the riskiest in a very stable national economy,” DeFranco said. “There’s a potential risk (for home price declines), but it’s not inevitable.”
Houston is at risk because its economy is still largely oil-dependent, DeFranco said. Although the Bayou City’s economy has become more diversified since the devastating oil crash of 1980s, the oil and natural gas industry still constitutes about 38 percent of the local economy, according to the Greater Houston Partnership.
With oil prices hovering near six-year lows, Houston energy companies have announced budget and job cuts, the latter of which directly impacts Arch’s risk model. While most of these cuts have occurred in the oilfields and not so much in Houston, DeFranco believes there could be a trickle-down effect on Houston’s housing market.
“The hard data show that (Houston) looks pretty solid in terms of unemployment,” DeFranco said. “It looks like a great place relatively speaking, but what we’re concerned about is the possibility for a negative spiral in the housing market. It’s more of a judgment call.”
Further exacerbating Houston’s risk is the construction frenzy and consequently the run-up in home prices during the energy boom, DeFranco said.
Before oil prices tumbled from $100 a barrel in the summer to about $60 a barrel currently, economists feared Houston was headed toward a housing bubble. Houston home prices are running about 20 percent higher than the historical average, DeFranco said.
While tumbling oil prices allayed fears of a housing market crash in Houston, the slowdown will likely claim some workers in the construction industry, which could, in turn, increase Houston's risk for lower home prices, DeFranco said.
There’s an upside to all this, however, DeFranco said.
Houston’s skyrocketing home prices were unsustainable and threatened its claim to relatively affordable housing. Falling home prices may spark higher consumer confidence and help homebuyers get back into the market. And Arch still plans to operate in Houston despite its higher than average risk rating, he said.
“At this point, we’re comfortable enough where we’re not looking at restricting insuring mortgages in Houston,” DeFranco said.