best of luck in 09
First of all, I think both cities are worth consideration, and if you get a significantly better deal in one city vs. the other, then I'd make the decision based on that. Both cities are desirable communities, assuming you buy in a good area generally (both cities--as all cities--have some parts that would not be a great investment).
However, supposing that you had pretty much the same buying opportunity in both Turlock AND Modesto, the edge I would give to TURLOCK. Here's why:
Modesto is a larger city, it has more employment, larger population, and more renters. However, it also has a much larger supply of homes for rent, too. In fact, even as a proportion, there is a bigger over-supply of vacant homes for rent than does Turlock, even after controlling for factors of renter population. For me that's the single most important factor--the supply/demand ratio. There is a tighter supply of rentals available in Turlock compared to Modesto. The same thing exists for home sales and values as well: Modesto has enough supply of homes that virtually every home buyer can find something satisfactory. However, in Turlock there is not enough supply of homes for sale--of housing stock generally, in fact--to satisfy all home buyers, relative to Modesto. Less inventory and supply mean that housing values fare better over the long term. And that has shown to be the case. Turlock's median price decline has been less than Modesto's, and I believe it is for that fact.
So to conclude, I do think that both cities should be worth your consideration. And really, your search should be more focused on specific homes and values within specific neighborhoods than to write off one city and look exclusively in the other. A good neighborhood in Modesto will do you better than a not-so-great area of Turlock. However, if I had to choose one city only (and plan to do so myself sometime this year), I'd give the slight edge to Turlock based on equal-to-better overall desirability and because of less supply of rental homes and homes for sale.
The Lewis Team
Prudential California Realty
P.S. While there is much to chose from in both places, you might be interested in a home I'll be putting up within a couple of weeks in a good, desirable neighborhood in Turlock. I'd be interested myself except I don't purchase my own listings because it's a conflict of interest. But it was a home for this couple for 30+ years and they took great care of it and are selling now due to age (going to assisted living). It is in great condition, is not bank-owned or a short sale, and is fixed up very nicely and will be going for around $150,000. It is in turnkey condition and will be ready to rent or have your parents move in right away, though it's somewhat smaller than your target size. Let me know if you want more info on it. But again, there are many good options to choose from right now.