Attention, California Mortgage Applicants: Sacramento Home Prices Likely to Fall

Those seeking a California mortgage would be well-served to consider cities that are the most affordable.

With that in mind, consider Sacramento home prices: the local housing market has a 60.4 percent chance of lower prices during the next two years, the greatest risk nationwide, according to a report released Wednesday.

Sacramento and Placer counties edged out other high-priced markets - including San Diego County, Oakland and Santa Ana-Irvine-Anaheim - as the riskiest for a price reduction by winter 2009, according to PMI Mortgage Insurance Co.

Seven of the 10 highest-risk markets were in the California housing market, all with a 59 percent-plus chance of lower prices over the two-year period. The other communities were on the Eastern seaboard.

Thirty-four of the nation’s 50 largest markets are at a higher risk for a price drop during the next two years, according to the report. Combined with reasonable home loan rates under 6.5%, this is an ideal time to buy.

The national average - or the risk of a price drop - is about 34 percent, compared to 33 percent in the fall quarter.

“Years of rapid appreciation have made homes less affordable in many areas, and that’s not sustainable over the long term, so what we are seeing is not unexpected,” said Mark Milner, chief risk officer for PMI Mortgage Insurance in Walnut Creek. “Over time, moderating appreciation will bring prices back in line with economic fundamentals, particularly incomes, bringing the market back to a healthy balance.”

Pittsburgh has the nation’s lowest risk at 6.2 percent. Those thinking about a Pennsylvania mortgage, therefore, should not expect prices to come down much in 2007.

Despite the downbeat news, Milner said the housing market will benefit from good job growth and a relatively low unemployment rate nationwide.