Two Americas: California outlook weakens while most markets improve

Mortgage insurer PMI Group's latest report on the risk of falling home prices concludes there are "two distinctly different paths" for housing in America right now: most of the nation's housing markets are showing signs of improvement, but bubble-inflated markets in California and Florida are showing signs of further deterioration amid rising foreclosures.

Addressing the risk of falling prices over the next two years, PMI reports, "risk continued to intensify in many of the (metropolitan areas) where home price growth had significantly exceeded historical norms, but continued to decline in many other areas across the country."

The above map shows the "two Americas" in housing risk in the first quarter of 2008 -- the red areas are cities where PMI is most certain that housing prices will decline over the next two years.

In 35 of the 50 largest metropolitan areas in America, PMI reports, the risk of future price declines decreased in the first quarter; however, in California, the risk of price declines increased in 25 of the state's 28 metropolitan areas.

The main shadow over the state's real estate markets, according to PMI: foreclosures, which tend to drive down prices. PMI did find one sign indicating that California's market may be normalizing: excess housing supply is declining in many markets -- the supply of unsold inventory in Orange County, for example, dropped from 29.0 months' worth in late 2007 to 20.3 months in early 2008. In Los Angeles, inventory declined from 18.7 months to 17.9 months, PMI reports.

To calculate "risk index," PMI uses economic, housing and mortgage market factors, including home price appreciation, employment affordability, excess housing supply, interest rates and foreclosure activity.

Here's PMI Group's list of the cities with the highest "risk factors" in the first quarter of 2008 (A "risk factor" of 85% means PMI believes there is an 85% chance of declining property values in the next two years):

National Rank   City                              Risk index
1)   Riverside-San Bernardino-Ontario    95.5%
2)   Fort Lauderdale-Pompano Beach        92.2%
3)   W. Palm Beach-Boca Raton              91.9%
4)   Orlando-Kissimmee                         91.1%
5)   Las Vegas                                       88.1%
6)   Tampa-St. Petersburg                     86.6%
7)   Santa Ana-Anaheim-Irvine               85.8%
8)   Los Angeles-Long Beach-Glendale     85.7%
9)   Miami-Miami Beach                         84.8%
10) Sacramento                                     82.2%

--Peter Viles
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Graphic credit: PMI Group

Comments

[pugtv]

Omg. If you guys keep publishing these articles, ShockG will one day realize his house is worthless. Please stop it. He's angry and bitter enough as it is.

ShockG ... go back to your happy place with the bunnies and the rainbows. A little vodka will help too =)

Btw, haven't seen you rant at the angry renters recently. Perhaps you're on medication now? Wish you well.

[Laker]

Peter, this is old old news.
Every moron knows that price in LA TODAY, not 2006, but today's prices are way disconnected from rents and incomes.
In the fly over states, price have never tripled so why would anybody be surprised if price that increased 10-20% over the last 6-8 years, are now down 10-15% and stabilizing....At those placed the correction is over. Prices are now inline with incomes and rents. I've seen many places where rents are MORE expensive than comparable mortgages (should be like that).

In LA, prices went up 200-300% in 8 years...so what do you expect????
All the markets will return to their equilibrium. Don't confuse this with thinking a house in West LA will cost $150,000. But there is 100% guarantee that the correction will get us to 2001 prices be in Lancaster (maybe even lower) or Beverly Hills. 2001 was the last time, there was some economical connection between prices, incomes, and rents.
PMI is very optimistic, All their numbers higher than 80% should be corrected to 100% risk.

[el guapo]

This isn't surprising. The Alt-A bomb that is about to drop and give the more expensive neighborhoods a wake up call over the two years applies to zip codes where houses were more than $417K. $417K goes an awfully long ways in the heart land. Buys a shack in gang land here (or did 2 years ago).

But it does look to me as if PMI doesn't include the shadow inventory building up and relies on mls data. Just a hunch...

[jag]

If my vision does not deceive me, I believe the entire L.A. Metropolitan area including West L.A. is red.

[Lou]

But I heard on the radio that an average a home doubles in value every 10 years? Why would the NAR lie?

[Res Ipsa Loquitur]

HousinG Prices in SoCal are ridiculous.

[Baltimoron]

I can't believe that the general area of Maryland isn't deeply in the red. I live in Baltimore and let me tell you that the bubble's bursting hasn't even begun here. Houses are still being listed at double and sometime triple what people paid for them just 5 years ago. The going rate on a small 3 bedroom townhouse in any decent area around Baltimore was generally $120,000 - $180,000 in 2004. Now they're usually listed on the MLS from $270,000 - $350,000. And the crazy thing is that median income has actually shrunk in that time. It's like people have completely forgotten the fact that just 5 years ago, they would have laughed at these prices.

I feel sorry for any first time home buyers out there. The median income around Baltimore is about $50,000, but you basically need to earn $100,000 a year just to buy a starter home now.

[shockg]

Pugtv, You reek of vested interest. Go take a bath! Better yet, go create another bubble blog.

[tai]

1. I think the tragic areas are the Rust Belt, where Detroit and Cleveland are already at pre-2001 prices, according to Case-Shiller.

2. Given that interest rates are nearing 7%, I would think that the likelihood of home prices decreasing would be 100% everywhere.

[Nelcisco]

Lou, I assume NAR is national. Nationally it would make sense that the home values double every 10 yrs. 200 to 300% in 8 yrs. is in L.A.

[IToldu2CashOut]

You can't even describe how foolish it is for people to be taking homes off the market now that really need/want to sell. This is why inventory is decreasing and it is the equivalent of dunking your face in the bathtub because you can't breath. If you need to sell take some good advice and lower your asking price by 30% while you still can.

[Fourth Generation]

A new definition for RED LINING. Man it cannot get better than that.

[Santa Barbara Real Estate Voice]

This news is defintely not too positive. With that said, I think these articles are "too wide of a broom sweep" if you will. Within our area here in Santa Barbara and Montecito CA (yes that is California), the market is mixed. Our high end from $3 Million and above has only seen increases in prices in the last few years for example. Below $3 Million it is mixed with anywhere from 10%-40% drop.

I do tend to think there is a lot of negative news out there and if these forecasts are true, then some of these homes are going to sit in a years time at 10% of the value they were at their peak...which makes NO sense.

Time will tell, but I wish some of these articles were more specific to locations rather than broad sweeps.

[pugtv]

ShockG,

I'm very open about my vested interest ... why don't you try doing the same? =)