Property values bracing for a fall
Home prices across Bay Area are likely to drop, study says
Kelly Zito, Chronicle Staff Writer
Wednesday, June 28, 2006
Homeowners across most of the Bay Area stand a 55 percent or greater chance that their property values will slip in the next two years, according to a quarterly study by a mortgage insurer.
Yet even though the real estate market has cooled from its go-go days a year ago, higher interest rates and still-appreciating home values continue to put homes out of reach for many, the study noted.
"The highest risks continue to be in California and the Boston-to-New York corridor, and places where there have been (large price) jumps over the last several quarters such as Las Vegas," said Mark Milner, chief risk officer at Walnut Creek's PMI Mortgage Insurance Co., which released the survey Tuesday.
The Oakland area, encompassing Alameda and Contra Costa counties, has a 58.2 percent chance of a price drop over the next two years, placing it seventh on the list of the 50 riskiest markets. In PMI's previous report, the city had a 57.6 percent chance.
In the Bay Area, defined as San Francisco, San Mateo and Marin counties, homeowners face a 56 percent likelihood of price declines, up slightly from 55 percent. The San Jose area, made up of Santa Clara and San Benito counties, has a 55.9 percent chance, up from 54.8 percent.
San Diego-Carlsbad-San Marcos was the riskiest market, with a 60 percent chance of declines.
The study did not predict the magnitude of any price drops, and forecasts a gradual cooling for the local and national housing market as job gains appear to be offsetting the slowdown in the housing market.
The average risk level for the top 50 metropolitan areas increased to 28.8 percent, up 7 percent from one year ago. Among the markets studied with the lowest risk of price declines were Pittsburgh; Indianapolis-Carmel, Ind.; Memphis; and Cincinnati, which all have a less than 6 percent chance of price decreases.
The report analyzed first-quarter federal data on household incomes, home-price growth, employment conditions and interest rates.
With mortgage rates trending higher and a larger inventory of homes on the market, sales across the nine-county Bay Area have slowed substantially in the past 12 months, and price appreciation has decelerated from over 20 percent early last year to 6.5 percent in May.
Still, many industry insiders remain optimistic that the market will remain in positive territory.
"The reason prices go down is because job markets are hit," said Avram Goldman, president of Coldwell Banker of Northern California. "The market is transitioning -- but we've been in such a frenzied sellers' market for so long, people don't know what a regular market is like."
One tool more consumers may use to keep the market afloat is longer-term mortgages -- a side issue highlighted in the PMI report.
Forty and even 50-year mortgages are becoming more common as borrowers seek to balance risk and keep payments manageable. Although they accrue equity at slower rates that more traditional 15- or 30-year home loans, they are not vulnerable to rate changes, unlike adjustable rate mortgages.
"The lending community is endlessly innovative, and they're trying to develop products to deal with the affordability problem in California," Milner said.
E-mail Kelly Zito at kzito@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/06/28/BUGVJJLAU01.DTL
Home prices across Bay Area are likely to drop, study says
Kelly Zito, Chronicle Staff Writer
Wednesday, June 28, 2006
Homeowners across most of the Bay Area stand a 55 percent or greater chance that their property values will slip in the next two years, according to a quarterly study by a mortgage insurer.
Yet even though the real estate market has cooled from its go-go days a year ago, higher interest rates and still-appreciating home values continue to put homes out of reach for many, the study noted.
"The highest risks continue to be in California and the Boston-to-New York corridor, and places where there have been (large price) jumps over the last several quarters such as Las Vegas," said Mark Milner, chief risk officer at Walnut Creek's PMI Mortgage Insurance Co., which released the survey Tuesday.
The Oakland area, encompassing Alameda and Contra Costa counties, has a 58.2 percent chance of a price drop over the next two years, placing it seventh on the list of the 50 riskiest markets. In PMI's previous report, the city had a 57.6 percent chance.
In the Bay Area, defined as San Francisco, San Mateo and Marin counties, homeowners face a 56 percent likelihood of price declines, up slightly from 55 percent. The San Jose area, made up of Santa Clara and San Benito counties, has a 55.9 percent chance, up from 54.8 percent.
San Diego-Carlsbad-San Marcos was the riskiest market, with a 60 percent chance of declines.
The study did not predict the magnitude of any price drops, and forecasts a gradual cooling for the local and national housing market as job gains appear to be offsetting the slowdown in the housing market.
The average risk level for the top 50 metropolitan areas increased to 28.8 percent, up 7 percent from one year ago. Among the markets studied with the lowest risk of price declines were Pittsburgh; Indianapolis-Carmel, Ind.; Memphis; and Cincinnati, which all have a less than 6 percent chance of price decreases.
The report analyzed first-quarter federal data on household incomes, home-price growth, employment conditions and interest rates.
With mortgage rates trending higher and a larger inventory of homes on the market, sales across the nine-county Bay Area have slowed substantially in the past 12 months, and price appreciation has decelerated from over 20 percent early last year to 6.5 percent in May.
Still, many industry insiders remain optimistic that the market will remain in positive territory.
"The reason prices go down is because job markets are hit," said Avram Goldman, president of Coldwell Banker of Northern California. "The market is transitioning -- but we've been in such a frenzied sellers' market for so long, people don't know what a regular market is like."
One tool more consumers may use to keep the market afloat is longer-term mortgages -- a side issue highlighted in the PMI report.
Forty and even 50-year mortgages are becoming more common as borrowers seek to balance risk and keep payments manageable. Although they accrue equity at slower rates that more traditional 15- or 30-year home loans, they are not vulnerable to rate changes, unlike adjustable rate mortgages.
"The lending community is endlessly innovative, and they're trying to develop products to deal with the affordability problem in California," Milner said.
E-mail Kelly Zito at kzito@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/06/28/BUGVJJLAU01.DTL