California Tops PMI’s Risk Index

Seven out of the 10 riskiest housing markets in the nation for home price deflation over the next two years are located in California, according to the Winter 2007 PMI U.S. Market Risk Index just released by the PMI Mortgage Insurance Co.

Studying the 50 largest Metropolitan Statistical Areas (MSAs) in the nation, scores increased for 34 out of the nation’s top 50 over a year earlier, with an average score of 342. Based on a 1000 point scale, that score translates into a 34.2 percent chance of lower home prices nationwide over the next two years. Of the top 50 metros, 19 face a more than 50 percent chance of declining home prices through the end of 2008.

The Sacramento-Arden-Arcade-Roseville, CA, metro area topped the list with a score of 604 (a 60.4 percent risk factor that home prices will decline). The San Diego-Carlsbad-San Marcos, CA, and Oakland-Fremont-Hayward, CA, metro areas tied for second place with a score of 603. The third highest risk factor was found in the Santa Ana-Anaheim-Irvine, CA, metro area with a score of 602.

Rounding out the top 10 with their scores were: Nassau-Suffolk, NY (601); Riverside-San Bernardino-Ontario, CA (600); Los Angeles-Long Beach-Glendale, CA (597); Boston-Quincy, MA (595); Providence-New Bedford-Fall River, RI-MA (595); and San Jose-Sunnyvale-Santa Clara, CA (592). The San Francisco-San Mateo-Redwood City, CA, metro area came in 11th place with a score of 588.

However, economic fundamentals are strong in most of the 50 MSAs studied — particularly due to historically low unemployment rates and strong job growth — leading PMI to conclude that the severity of the price declines in most metros will be somewhat mitigated.

Of the top 50, all but four metro areas — Detroit and Warren, MI; Cleveland, OH; and Indianapolis, IN — saw employment growth. Given that fact, it is no surprise that two out of those four metros also documented some of the highest foreclosure rates in the country for all of 2006.

According to RealtyTrac’s year-end report for 2006, Detroit led the nation’s 100 largest metro areas in foreclosure rate, reporting that 4.9 percent of all households went into foreclosure. That translates into one new foreclosure filing for every 21 households — or 4.5 times the national average. Total foreclosures in the Detroit metroplex numbered more than 10,000 filings in each quarter of 2006.

Despite declining foreclosure numbers in each and every quarter throughout 2006, the Indianapolis metro area still registered the third highest foreclosure rate in the nation for all of last year. Reporting total foreclosure filings representing 4.3 percent of all households — one new filing for every 23 households — the metro’s foreclosure rate was almost four times the national average.

While employment was down in those areas, the New Orleans metro led the nation with 8.37 percent employment growth for last year. The Las Vegas, NV, metroplex came in second with 5.38 percent employment growth for 2006.

Members of RealtyTrac looking to invest in foreclosure properties around the country would be wise to keep track of activity in PMI’s top 50 metro areas. If the results of this latest risk index prove true to form, there most likely will be more foreclosures coming down the pipeline as distressed homeowners in those areas find themselves in a situation where they can’t sell their way out.