Danger Behind High Home Prices
Red-hot home prices in Ventura County won’t likely cool off soon, but the high cost of housing looms as a major threat to local business expansion, an economist warned Thursday.
Mark Schniepp, director of the California Economic Forecast, said the Federal Reserve raising its key short-term interest rate this summer has not slowed the acceleration in housing prices.
“Median-selling prices are more than $100,000 greater than they were a year ago at this time,” said Schniepp, who discussed his forecast during a packed conference at the Hyatt Westlake.
“We’ve said before this rate of increase can’t continue, but it has,” he said. “It’s completely baffled us.”
Steady demand for housing has kept home prices climbing nationwide, but especially in Southern California. In July, the median value of existing homes in Ventura County was $626,510 -- more than 36% above the 2003 median of $458,600.
The cost of new, single-family homes is even further out of reach for a typical household, Schniepp said. Prices jumped nearly 47% -- to $884,236 countywide -- during the 12 months ended in July. Prices ranged from more than $564,000 in Oxnard to $1.18 million in Thousand Oaks.
At these prices, the Santa Barbara economist expects the number of countywide sales to decrease by more than 1,140 dwellings, off nearly 10% this year.
“Prices are rising so fast, so furiously -- that means fewer and fewer people can afford these homes,” he said.
Even workers who rent must earn at least $35,000 to afford a typical studio apartment in Ventura County to keep from paying more than 30% of their income for housing, said panelist Dawn Dyer, president of a Ventura real estate consulting firm. To afford a typical two-bedroom apartment, with an average rent of $1,356, household income needs to be $54,000.
Joan Young, who has sold real estate in Ventura County for nearly four decades, told the audience the pace of sales has slowed in the second half of the year. There is now a three-month supply of homes on the market.
“Do I think we’re in for a crash? No, I think we’re in for a soft landing,” Young said. Home prices should remain firm as long as local employers continue to generate good-paying jobs, she added.
Average annual salaries in Ventura County last year for nonfarm workers rose nearly 7% to $41,986.
According to state figures, an estimated 700 jobs were created in Ventura County through July 31, which if unchanged would be the smallest gain in more than a decade.
Schniepp believes the number is higher, because monthly Employment Development Department surveys don’t include workers at businesses with fewer then 100 employees, where much of the job growth occurs. Information on those workers is gathered annually.
A state poll of households said 4,400 more Ventura County residents had jobs in July, which Schniepp said points to a higher number of self-employed and contract workers, along with more residents who commute to jobs in Los Angeles and Santa Barbara counties.
An index Schniepp’s firm created this spring to measure the cost of doing business in the state found that California had the highest overall costs, especially in workers’ compensation premiums, industrial electricity costs and sales taxes. The state ranked No. 2 behind Hawaii in median home costs, but only by $9,000.
High housing costs pressure employers to raise salaries. Consequently, some companies leave the state -- Kinko’s took about 600 jobs from Ventura to Dallas -- or look outside California to expand, such as mortgage lender Countrywide, which has a major Simi Valley facility but is growing in Arizona and Texas.
The U.S. economy -- on track at midyear to grow by 2.8% -- is expected to continue its modest recovery, shaking off rising oil prices, according to Christopher Thornberg, senior economist with the UCLA Anderson Forecast.
Consumer spending, fueled in recent years by lower interest rates on credit cards and home-equity loans, will eventually run out of steam, he said. “There has to be a slowdown, but you hope it happens gradually so the economy can adjust,” Thornberg told the audience.
