PMI’s second quarter U.S. Market Risk Index showed fresh evidence of a recovering national housing market, including improved prospects of higher housing prices in many markets within two years.

While 64 percent of the top 50 metropolitan service areas (MSAs) still have a greater than 50 percent chance of lower prices by the end of 2011, that figure is down from 82 percent in the previous quarter.

In addition, 40 percent of these MSAs showed a score improvement of 20 percent or more. Although the PMI Risk Index does not measure the magnitude of future declines, the forecast does provide encouraging signs for moderating probabilities of price declines for the remainder of 2010 and into 2011 among these largest MSAs.

Another encouraging sign for these most populous MSAs is that 18, or 36 percent, also have Risk Scores less than 50, up from 20 percent in the prior quarter, indicating a probability of higher prices in two years.

A combination of factors is leading to decreases in the risk of lower housing prices in two years in many MSAs. These factors include increasing affordability, generally improving mortgage credit quality, decreasing foreclosure rates, and a drop in excess housing supply.

“Housing affordability continued to climb, and in some MSAs is at or near record levels,” said David Berson, PMI Chief Economist and Strategist. “House prices have dropped sharply relative to incomes in most areas suggesting that prices have fully, or more than fully, adjusted for their unsustainable increases during the housing boom.”

PMI’s U.S. Market Risk Index(SM) uses economic, housing, and mortgage market factors, such as home price appreciation, employment, affordability, excess housing supply, interest rates, and foreclosure activity in assessing the risk of price declines in that nation’s MSAs. Risk scores translate directly into a probability (ranging from zero to 100) that the price of homes in a given MSA will on average be lower at the end of the next two years.

The PMI Group, Inc. (NYSE:PMI) , headquartered in Walnut Creek, CA, provides credit enhancement solutions that expand homeownership while supporting our customers and the communities they serve. Through its wholly and partially owned subsidiaries, including PMI Mortgage Insurance Co., PMI offers residential mortgage insurance and credit enhancement products.