This is a study by PMI Mortgage Insurance indicates that Santa Clara County is the fourth riskest market for price declines in the United States. Mortgage insurance is required by any home owner who doesn't put down 20% or more for a down payment. Give the rise of prices in Santa Clara County combined with the spread of ARMS this represents a risk. Insurance companies like PMI are more likely to be dispassionate about the real estate market. They bear a great deal of risk if owners cannot make payments.
"In its quarterly ``market risk index,'' Walnut Creek-based PMI Mortgage Insurance calculated a 51.3 percent likelihood that home prices in the San Jose-Sunnyvale-Santa Clara will drop over the next two years."
Boston, Long Island, N.Y., and San Diego were the top three, with Boston home prices judged 55.3 percent likely to decline before 2007.
PMI, a major seller of private mortgage insurance, did not predict the depth or longevity of price downturns. Mortgage insurance protects lenders from financial loss in the event that homeowners default on their loans. Many home buyers who make down payments of less than 20 percent must pay for such insurance to qualify for mortgages.
The company's risk survey relies on federal labor-market and home price appreciation data, and on the company's own affordability calculations, which measure local home prices against local median incomes and the price of 30-year mortgages.
``What we see in a lot of California markets, and certainly San Jose . . . is prices are outstripping incomes,'' said Beth Haiken, a PMI spokeswoman.
Outstripping incomes means the affordability index is dropping like a rock. The affordability index in regional markets like San Jose or San Francisco must be around 5% and that is not sustainable.
Related Links:
Market Risk Report
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Mortgage Insurance
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