Average New Home Price Expected Near $400,000 by End of ’90

Even though price increases will slow dramatically this year and next, the average new house in Orange County will still cost nearly $400,000 by the end of next year, according to a 2-year forecast commissioned by a local home builder.

That price would result from an anticipated 17% increase this year in the average price, which ended 1988 at $331,700, and a 4.5% increase in 1990, according to the forecast.

What’s more, fewer new houses will be built in the next few years as the high cost of land and fees holds construction down.

That is the view of Boyce & Associates, a small Irvine consultant hired by Irvine home builder Barratt American. Such studies are used by builders for planning purposes.

For builders who already own land, the forecast means good times ahead because they will probably sell everything they build even at the much higher prices.

For consumers, though, it means a limited choice and higher prices.

While economic forecasting is even less exact than predicting the weather, Boyce’s projections offer some interesting glimpses of what may happen to the housing market in the next 2 years.

While some local consultants are reluctant to predict exact numbers for home prices 2 years hence, they say Boyce’s scenario is plausible.

Boyce estimates the price of a new home in Orange County rose 41% in 1988. By the end of the year the average price hit $331,700, said Boyce, citing figures from another consultant, Costa Mesa’s Market Profiles. That makes Orange County one of the most expensive markets in the United States.

Across the nation, prices rose only 7.6% in 1988, according to the National Assn. of Home Builders, for a median price of $112,500.

Price increases will slow this year in Orange County to about 17%, Boyce forecasts.

That’s still far more than the national forecast, which the National Assn. of Home Builders pegs at about 5%, which would bring the price of a new home to about $117,000.

In Orange County, Boyce forecasts increases in housing prices will slacken still further in 1990, to about 4.5%.

So by the end of 1990, he predicts, the average price of a new house will be $390,700. Boyce said he arrived at that figure by balancing the kind of economic factors that drive demand--like population growth--against the expected supply of housing.

“There’s no way you’ll have the kind of price increases again you had in 1988,” Boyce said in an interview. “But demand will still keep prices increasing.”

County Prosperity

Rising incomes, increasing employment, population growth and stable interest rates all contributed to Orange County’s prosperity and its insatiable demand for housing last year.

But the biggest single factor was the slow-growth initiative, said Boyce, which was portrayed by the building industry as cutting off home construction. Until it was defeated by the voters in June, Boyce said, it pushed many more people into the market who feared a scarcity of houses and high prices would put a home beyond their reach.

Boyce said buyers prodded into the market by the initiative accounted for as many as 850 of the 7,497 new houses sold in the county last year.

But even as prices rise this year and next, Boyce said, the number of homes sold will drop simply because there are fewer being built. From 7,497 sales last year, Boyce projects sales to stay flat this year at about 7,422. They are expected to drop 4% next year, to 7,125.

Why so few sales? Because builders are turning out fewer houses as land gets scarcer and, more important, incredibly expensive.

Also on the rise are government fees and other expenses, which should help hold housing construction down despite continued strong demand, Boyce says.

Builders’ inventories of unsold homes are already near record lows, Boyce says. In other words, the cupboard is bare. And according to the forecast, that won’t get much better in the near future.