Jul. 8--Merced's already bleak housing market may worsen this year, two reports released Tuesday forecast.

Merced's foreclosure rate for May grew by 2.4 percentage points from the previous month. The rate is almost double the state's average and close to triple the nation's level, according to a study by First American CoreLogic.

Further price declines, spurred by excess housing, unemployment and the recession, could hit California and the Valley in the next two years, another report warns. The median price for a home in Merced County is $105,000, already a stunning drop from the 2005 boom high of $382,750.

The number of people falling behind on their payments has increased to 17.4 percent, according to First American CoreLogic. That means about one in six homeowners are more than 90 days late on their mortgage payment and probably headed for foreclosure.

Merced's rate grew from 11.5 percent in February to 17.9 in March before dipping to 15 percent in April. The state's average is 9.2 percent and the nation's average is 6.5 percent.

In the past 12 months -- June 2008 to May 2009 -- there were 14,793 foreclosure filings, which translates to about 40 a day. From June 2007 to May 2008, there were 9,158 foreclosure filings.

May's foreclosure rate increased to 6.50, a 1.10 percentage point increase from the same month last year. The nation's rate is 2.5 percent and California's rate is 3.10 percent.

U.S. Market Risk Index, a report by PMI Group, ranks cities by the risk of housing prices declining. Merced, along with other foreclosure-epicenters such as Miami and Phoenix, rank the highest. According to PMI, there's a 99.9 percent chance home values will fall further.

Houston and Cleveland are among major cities with the lowest risk of declines.

PMI blames high unemployment, excess housing and the recession as factors that would drive prices lower.

But there's some hope

For all the gloom in those reports, University of the Pacific's Business Forecasting Center said the Valley is one of the most promising long-term areas of the state.

"The present may indeed be an economic disaster, but the San Joaquin Valley is also an economic opportunity area with enormous potential for positive growth," the June report reads, citing the location, the young work force and the low cost of living as strong points.

The quarterly forecast cautions about designating the Valley as an economic disaster area because it could discourage investment. Federal aid, it notes, could help to educate people about the Valley's opportunities so it attracts business.

"The San Joaquin Valley is not Appalachia, and it is not post-Katrina New Orleans," the report reads. "The challenges here are different, and the opportunities are greater."

The center, part of the university's Eberhardt School of Business, predicts Merced's employment will return to its pre-recession level at the end of 2013.

Reporter Scott Jason can be reached at (209) 385-2453 or sjason@mercedsun-star.com.

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