Home Sales Expected to Slow, Prices to Rise

Rising interest rates will contribute to slowing sales of existing California homes in 2000, but home prices are expected to rise by 5%, the California Assn. of Realtors predicted Wednesday.

Single-family home sales should decline about 8% next year to 601,120 statewide, said Leslie Appleton-Young, the group’s chief economist, at CAR’s annual members meeting in Anaheim.

Although the state’s home prices have been accelerating for more than three years, the price disparity between California and other states is no longer as pronounced as it was during the last boom. Price differences, based on selected metropolitan areas, have closed in the 1990s.

The average price for a California home during the last peak in 1991 was $207,992, for example, nearly double the nationwide average of $113,819. By comparison, year-to-date averages have California weighing in at $238,335, with the nationwide figure at $153,216.

Probable moves by the Federal Reserve to thwart inflation by raising interest rates would contribute to a modest sales decline, Appleton-Young said. Continued volatility in the stock market and a decline in consumers’ faith in the economy could also hinder the pace of home buying.

“Over the last three months, we have seen a little bit of a retreat in the overall level of confidence” after nearly a year of rising consumer optimism, Appleton-Young said. “That’s one of the reasons you have to seriously consider that we are in a turning point in the third and fourth quarter of 1999.”

But despite the forecast decline in the number of sales, the state’s median home price is expected to rise to $228,400 next year, a 5% increase over this year’s projected median of $217,520.

In addition, this year is on target to be the best in California real estate in 30 years, with 653,390 homes projected to sell statewide, a 4% increase over 1998.

“We thought we were going to see a bit of a soft landing this year, but you’ve just defied everything,” Appleton-Young told 1,200 assembled real estate professionals.

The “soft landing” may instead come next year. In addition to the possible dampening effects of interest-rate increases or stock market dips, the state’s lack of affordable housing stock is a looming issue.

With the median price of a single-family home hovering at $222,000 statewide and only a four-month supply of homes in “inventory” on the market, more consumers will be priced out of homeownership in the coming years if the problem is not addressed.

“You can’t continue to have a strong, growing, vibrant economy if you don’t have affordable housing,” Appleton-Young said.

Among CAR’s other predictions were a 4% decline in condo sales and a 4% increase in the median price of condos, to $171,210. The group also expects new housing starts to increase 10%, to 170,500.

Appleton-Young said she expects the national gross domestic product to increase by 2.8% in 2000, down from the 3.6% growth forecast for 1999. She expects unemployment to creep up to 4.8% from 4.3% this year and fixed-rate mortgages to climb to an average of 7.8% from 7.4% forecast for 1999.

Southern California will continue its recovery, which began later than the Bay Area’s, and Central Valley homes will begin to appreciate as well, she said.

Nima Nattagh, an analyst with Anaheim-based First American Real Estate Solutions, also expects California home values to rise about 5% next year, with the San Francisco Bay Area and parts of Southern California outperforming Central California and the Sacramento area.

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California Housing Trends

Sales of existing homes are expected to dip by 8% as California heads into the new millennium. Median home prices, meanwhile, are expected to rise in 2000--but at a slower pace.

Resales

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1999 2000 1998 projection forecast Single-family homes 628,260 653,390 601,120 Annual % change +13.1% +4.0% --8.0% Condo resales % chg. +20.5% +10.0% --4.0%

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Median Prices

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1999 2000 1998 projection forecast Single-family homes $201,410 $217,520 $228,400 Annual % change +8.0% +8.0% +5.0% Condos $153,850 $164,620 $171,210 Annual % change +10.6% +7.0% +4.0%

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Total Permits

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1999 2000 1998 projection forecast Residential 125,710 155,000 170,500 Annual % change +12.5% +23.3% +10.0%

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Source: California Assn. of Realtors