Looking to avoid price reduction risk on your next second home or investment property?

Buy in San Antonio, TX; Cincinnati, OH; Memphis, TN; Indianapolis, IN and Pittsburgh, PA, where the risk of price reductions are the lowest in the nation.

Avoid San Diego, Santa Ana and Sacramento, CA, and Nassau-Suffolk, NY, and Boston, MA, where the risks are highest.

Of course where there's less risk of price deflation, there's also often less appreciation. And where risks are highest, prices have historically been stronger.

That's just some of the information you can glean from the "PMI Economic Real Estate Trends: Summer 2006", published by the PMI Group to show price decline risk scores and affordability measures of the nation's 50 largest metropolitan statistical areas (MSAs).

Of course price decline risk isn't the only factor to consider when buying a home, but it is on the tips of the tongues of anyone watching today's real estate market.

The report says 25 MSAs are experiencing increased risk, while 20 are enjoying decreases with others showing little if any change.

The average score for the top 50 MSAs increased to 288, a 70-point increase from a year ago. The score indicates the national market, on average, has a 28.8 percent chance of experiencing price declines in the next two years.

The highest risk score came from San Diego, at 599. The lowest was 57 in Pittsburgh, PA.

PMI says with the greatest increase in risk coming not from the riskiest markets, but from those in the middle (Newark, NJ and Miami, FL), that's good news, signaling that the economy is helping keep the real estate market from smacking into a wall.

Interest rates are rising, but not too quickly; income growth is slow; unemployment is low and job growth is steady.

"The Risk Index also shows that slowing price appreciation is balanced by underlying economic strength. In the absence of an unexpected economic shock, this makes a gradual cooling (rather than a freeze) of the market the most likely outcome," said Mark Milner, Chief Risk Officer of PMI Mortgage Insurance Co.

Unfortunately, even as the rate of home price appreciation typically slowed, affordability worsened in many of the 50 largest MSAs as home prices continued to increase year-over-year faster than incomes. Nassau-Suffolk saw its score drop below 70, a threshold below which an area is particularly vulnerable should an economic shock occur. There were a total of eight MSAs with scores below 70.

With a score of 59.36, Fort Lauderdale, FL, was the least affordable area followed by Riverside and Los Angeles, CA, at 61.14 and 61.83, respectively. Then came Santa Ana, CA; Miami, FL; Oakland, Sacramento, CA; then Long Island, NY. Affordability increased slightly in 19 markets, due largely to slower price growth and, in Austin and San Antonio, TX income growth exceeded house price appreciation.

"Skyrocketing home prices over the past few years have created a significant affordability challenge, as families who wanted to purchase homes confronted the fact that their incomes just hadn't kept up. Now the market has begun to slow -- a welcome change for buyers -- but affordability remains a challenge," the report says.

Published: July 4, 2006

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.