San Jose's housing market has been voted the housing market most likely to fail, but it's difficult to see what would make that so.

Walnut Creek­based PMI Mortgage Insurance Co. recently said San Jose, the capital of Silicon Valley, has the highest PMI Risk Index—437—among the nation's 50 large metropolitan areas. That means the economically floundering technology Mecca's housing market has a 43.7 probability of experiencing a home price decline within the next two years.

The PMI Risk Index is a statistical model based on certain measures of economic activity and conditions that PMI believes predict the likelihood of home price declines over the next two years. Among its data sources, the index examines the House Price Index from the Office of Federal Housing Enterprise Oversight and labor market statistics from the Bureau of Labor Statistics.

The Index has put San Jose's housing market at or near the top of the list for years, but even in the face of dot-combustion, thousands of job losses, and a small exodus out of town, the seemingly unstoppable market continues to push prices up, not down—even at the high end.

"We have seen quite a few high-end sales just in the last month or so. Many of them are still insisting on bargains when they do buy, but the activity is certainly encouraging," said Stefan Walker, a real estate agent with Alain Pinel Realtors in Los Gatos.

The median price of single-family homes involved in closed sales was $565,000 in August, up from $540,000 in 2002 and $516,000 in 2001, according to Creekside Realty broker/owner Richard Calhoun's Bay Area Market Report, comprised of data gleaned from the area's multiple listing service.

Low inventories, a third of what they were at the onset of the dot-com era, are helping keep prices aloft, says Jim Myric, broker/manager of Realty World Realty Solutions in San Jose.

"The inventory hasn't gone nuts like it did in 1989. It was a blood bath, with 11,000 to 12,000 homes on the market during the worst of it," said Myric, who is also vice president of the Santa Clara County Association of Realtors.

Silicon Valley homes were selling with a frenzy not seen in a September for 15 years, according to DataQuick Information Systems of La Jolla.

DataQuick said 2,988 homes sold in Santa Clara County in September. That's 1,151 more than were sold in September of last year—a whopping 62.7 percent increase in sales—in the midst of what some call a persistent, localized recession.

Santa Clara County's September home sales increase and the number of homes sold were the highest in the San Francisco Bay Area, accounting for one out of every four homes sold in the nine-county San Francisco Bay Area region.

DataQuick says indicators of housing market distress remain largely absent. Foreclosure rates are low, flipping rates are low, down payment sizes are stable and there have been no significant shifts in market mix. Big spenders who once paid twice the asking price of homes have left the market, but numerous creative financing programs are giving first-time home buyers the keys to home ownership.

The San Francisco Bay Area remains attractive to young, single college grads. From 1995 to 2000, the San Jose­Oakland­San Francisco area had the nation's highest net migration gain of nearly 50,000 single college graduates in the 25- to 39-year-old range, according to "Migration of the Young, Single and College Educated: 1995 to 2000," from the U.S. Census. Three years later, the best and the brightest are buying homes and the stuff to fill them.

So why the gloomy forecast from PMI? Some local investors say the numbers in Silicon Valley don't reveal homeowners who've yanked their homes from the market because they've been unable to get high asking prices, set in the stratosphere to pay off upside-down mortgages—mortgage balances that are higher than the home is actually worth.

PMI analysts say an overall increase in its index is largely the result of slowing home-price appreciation rates, the sluggish economy and weak labor markets in various industries around the country, particularly in both the high-tech and manufacturing sectors that heavily impact the Silicon Valley market.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for
Los Gatos Weekly-Times.