Chapman Sees Slower Pace in Growth of Home Values

After one of the biggest surges ever last year, prices of existing homes in Orange County will climb at a much slower pace this year, Chapman University President James L. Doti said.

Housing prices should move up about 4.6% this year, less than half the gains last year, when the market was fueled by high job growth, record low interest rates and exceptional gains in the stock market, said Doti, co-author of the university’s annual economic forecast for the county.

“Things will be softer, but not to the point to where we see an actual decline,” he told the Building Industry Assn. of Orange County on Monday in Irvine.

A year ago, he had predicted housing prices would move up about 4% in 1998, which turned out to be the biggest mistake in the university’s forecast. Instead, prices surged 11%.

But with all major indicators moving down and the Asian financial crisis threatening to curb exports, increases in home values in Orange County should slow significantly. In fact, Doti expects the Inland Empire to eclipse Orange County in two key areas. Building permit values should go up 8.9% in the Inland Empire, compared with 8.7% in the county, while home prices should go up 5.8% there, compared with the estimated 4.6% gain in Orange County.

Despite the lower projections, Orange County builders still cannot produce enough housing to meet demand, which Doti expects will fall more than 2,500 units short, or nearly 20%. There’s a shortage of buildable lots in Orange County, hampering builders’ efforts to meet demand. In fact, the inventory of homes available on the market was the lowest ever at the end of 1998, he said.

Over the next five years, Doti believes housing prices will climb about 5% a year. If interest rates move higher, or if income growth wanes, however, fewer people will be able to afford to buy.

“We hope income growth will be significant enough to meet that level,” he said. “But if it doesn’t, affordability will drop.”