You know that California’s housing market is hurting when even the state’s biggest real estate trade group cannot rouse much enthusiasm about the near future.
That’s the gist of the annual housing forecast issued Tuesday by the California Assn. of Realtors, which said home sales should drop another 2.4% in 1994 and the median price of a home should fall another 3.1%.
The realty group had originally predicted a modest 1.9% rebound in sales this year but now says sales will probably be 4.4% below last year’s level.
Economists at the Los Angeles-based trade association say they underestimated the severity of the recession that first gripped the state in 1990. The group is now saying that continued job losses in 1994 will force sales and prices even lower from their already depressed levels.
“We have low interest rates and affordable home prices, but we’re not going to see the (housing) market show a lot of strength until more jobs are created and consumer confidence picks up,” said Leslie Appleton-Young, an economist for the trade group. “That isn’t happening now, and it won’t be happening soon.”
About 410,000 detached, single-family homes will be sold by the end of this year, Appleton-Young predicted, down 4.4% from last year.
Next year looks even worse. The economist said sales should drop another 2.4%, to 400,000, as continued low mortgage rates won’t be enough to coax recession-weary consumers into moving.
The median price of a home, which the realtors say will end this year 3% lower than where it began, is expected to fall another 3.1% in 1994 to $186,000. If that forecast is accurate, it would be the third straight year that prices have dropped.
Appleton-Young said 1994 is shaping up to be much like 1993 and 1992, with sales and prices in lower-priced communities faring better than markets in coastal areas where homes are more expensive.
Steadily dropping mortgage rates have allowed many longtime renters to buy their first home over the past few years, which has bolstered neighborhoods where houses are relatively cheap. But values in higher-priced areas have been clobbered, as many current homeowners have refused to take on the bigger mortgage payments needed to “move up” into a nicer house.
If the 1994 forecast for single-family homes is gloomy, the outlook for condominiums is downright grim.
Condo sales this year are expected to fall 15% from last year’s levels, and another 6% drop is expected in 1994. Median condo prices, which are already about 4% below a year ago, are expected to tumble another 6% in 1994 to $131,000.
Traditionally, condominiums have attracted first-time buyers because their low prices made them more affordable, Appleton-Young pointed out. But the low mortgage rates, coupled with lower prices, have allowed many first-time buyers to purchase detached houses instead, leaving a glut of condos on the market.
Ironically, Tuesday’s bearish report came as the state’s battered housing market is showing signs of life.
On Monday, the realty trade group said home sales in August dipped a modest 2.9% from July but were 10.1% higher than a year earlier. And just last week, the UCLA Business Forecasting Project said continued low interest rates should lead to a 20% rise in construction by the middle of next year and an end to the state’s prolonged recession by the third quarter of 1994.
But economic recovery will come slowly, Appleton-Young said Tuesday.
The California Assn. of Realtors said home sales and prices will continue to fall in 1994. Here’s how the the trade group’s forecasts have fared over the last few years.
1993 figures are mid-year CAR projections for actual sales and prices. Source: California Assn. of Realtors