Central Valley most likely to see lower home prices

WALNUT CREEK
January 15, 2008 7:11am

Central Valley cities are among the most likely places in the nation to see home prices decline in the next two years, according to a report Tuesday from the PMI Group Inc. (NYSE: PMI), a Walnut Creek-based writer of mortgage insurance.

The most likely place in the country is Naples, Fla., in PMI’s opinion, but Stockton and Merced are tied as the fifth most likely locations for price declines. PMI says the two Valley cities have a 91 percent chance of price declines. Naples has a 97 percent chance.

Several Central Valley markets fall into PMI’s highest-risk category. By market, from south to north:

Bakersfield had a third quarter 2007 risk score of 86 compared to 64 in the second quarter.

Visalia-Porterville’s score was 62, up from 50.

Madera had a risk score of 64, more than double the 31 it had in Q2.

Merced’s score in the latest reported quarter is 91, among the highest in the country. In the second quarter, PMI put it at 75.

Modesto came in at 86, compared to 63

Stockton also had a 91, up from 80 in Q2.

Sacramento was given a risk score of 73, up from 49, by PMI.

Doing better were these Central Valley markets:

Hanford-Corcoran is in PMI’s second tier. The market was given a score of 43, up from 23.

Fresno also lands in Tier Two with a risk score of 59, up from 40.

Strongest of all, at least in the Central Valley, is the Chico market, given a risk score of 40, putting it in the third tier of markets. Chico’s score was up from the 21 it had earned in the second quarter.

Among the nation's 50 largest metropolitan statistical areas (MSAs), the risk of price declines increased in 39 and did not fall in any, PMI says.

It says its risk index is based on third-quarter Office of Federal Housing Enterprise Oversight (OFHEO) data, modified to make foreclosure rates and excess housing supply more explicit components of the model.

Twelve of the 50 largest MSAs are in PMI's highest risk rank, with a greater than 60 percent chance that home prices will be lower in two years.

Risk remains largely concentrated in a number of MSAs in California and Florida, as well as in Las Vegas, Nev., and Phoenix, Ariz., PMI says.