'Orderly Slowdown' in Sacramento?

**Thursday: updated article**

For the first time, Sacramento has cracked the top 5 riskiest markets list, but there's nothing to worry about since the market is experiencing an "orderly slowdown," says PMI's chief risk officer.

Home prices in El Dorado, Placer, Sacramento and Yolo counties have a 58.5 percent chance of declining during the next two years, said Walnut Creek-based PMI Mortgage Insurance Co. That's up from 41.8 percent at the same time last year, PMI reported.

[O]fficials at PMI, which provides mortgage insurance to home buyers who make less than 20 percent down payments, said the Sacramento area is unlikely to experience a regional crisis or real estate crash. "The offset to those risks is the economy. It remains really strong in Sacramento," said PMI's chief risk officer, Mark Milner. "Job growth is strong and unemployment is slightly below average. "What we're seeing in Sacramento right now is really an orderly slowdown in the market," he said. "Prices have gone up so much faster than incomes and incomes will have to catch up."

Mr. Milner also is recommending 40 & 50-year mortgages.

"We continue to believe traditional mortgages are the best option for homeowners to protect their financial stability and home equity," Mr. Milner says. "But with increasing affordability challenges exacerbated by rising interest rates, many families cannot buy a home without an affordability product. Forty- and 50-year mortgages help families get into homes now and offer a safer alternative to interest only loans and payment option adjustable rate mortgages by eliminating the risks related to payment shock that are built into some products. While you build equity more slowly, you still build it."

More from the updated article:

The study adds to the increasingly widespread notion among housing experts that the Sacramento-area market shot up too far and is among regions in line for a correction. Earlier this month, a study by Massachusetts-based Global Insight and Ohio-based mortgage provider National City Corp. declared the Sacramento market to be 53.6 percent overvalued.

Though the new PMI analysis backs traditional economic arguments that area home prices will likely see a "soft landing," thanks to strong job growth, the top five ranking brings fresh jitters to the region's already uncertain real estate market. "In my discussions with folks in the real estate industry there is a lot of nervousness about a continuing sluggishness in the market right now," said Scott Syphax, president and chief executive officer of Sacramento-based Nehemiah Corp. of America, which provides down payment assistance and runs other affordable housing programs. "They're not seeing evidence of a late-spring, early-summer pickup they would have expected after such a slow first quarter," Syphax said.