Slower rise in home prices is forecast

At current double-digit rates of appreciation, Los Angeles housing prices are rising at a faster pace than can be sustained, , UCLA senior economist Christopher F. Thornberg warns.

In the UCLA Anderson Forecast released last week, he noted that most of the appreciation in Los Angeles housing prices, up until the middle of 2003, was largely justified by a tight housing market and falling interest rates. “Yet the surge at the end of last year seems more a function of panicked buyers and an overly optimistic real estate community than through any real change in fundamentals.”

Thornberg said home prices now in Los Angeles are likely to be overvalued by 10% to 15%. He sees a 6% to 7% appreciation this year. “If double-digit rates are seen again, we may be entering a serious asset price bubble that could have potential ramifications down the road.”