Slower Rise in Home Prices Forecast
Experts up and down the state have warned that the housing market is starting to lose steam. And the latest forecast Wednesday from the California Assn. of Realtors predicted that home prices would moderate in 2006, rising a mere 10% after four years of hefty gains, on slightly lower sales.
But as the old real estate adage goes, it’s all about location, location, location when it comes to cooling housing markets.
Just ask property developer Tom Cody. He and his partners were stunned when all 194 units of a new condominium high-rise in downtown Los Angeles they are building sold out in less than eight hours last weekend.
“It was really shocking, even to us,” said Cody, a principal of Portland, Ore.-based South Group. “We were blown away.”
In a city where there are relatively few newly built homes and the median price is $544,000, as calculated by the Realtors group, brand new condos averaging $650,000 may qualify as bargains.
Indeed, home prices in and around downtown Los Angeles are clocking growth rates of more than 30% on a year-over-year basis, while the rates in a couple of ZIP Codes on the Westside have slowed considerably and in a few cases have declined, according to DataQuick Information Systems, which compiles property transactions.
California’s real estate market is full of such examples. Inland neighborhoods where prices are considered more affordable are still appreciating at double-digit rates, while coastal areas are seeing softening.
Taken together, the price trends augur for a soft landing for a state market that has been red-hot for nearly five years.
“We’ll start to see some slowing,” said Leslie Appleton-Young, chief economist of the state Realtors group. She predicts that 2006 will be the second straight year in which home prices will appreciate more slowly. Prices grew 18%, year over year, in 2003 and 21% in 2004 and will rise at a projected 16% this year, the group said.
In the group’s annual forecast, Appleton-Young predicts a median home price in California of $575,500 next year, compared with a projected median of $523,150 this year. Sales in 2006 are projected to reach 630,610 units, down 2% from this year’s expected results.
(The group calculates its median based on a sampling of data about existing-home sales supplied by real estate agents around the state. The data don’t include sales of newly built homes or existing homes sold without the aid of an agent.)
Another indicator of the slowing market is rising inventory. Even though the current supply of houses for sale -- 3.2 months’ worth -- is about half the historical average, volume is starting to tick up, Appleton-Young said.
The state’s real estate boom has been fueled in large part by persistently low mortgage rates that have helped offset everrising home prices. For more than two years, the fixed rate for 30-year mortgages has hovered just below 6%.
A year ago many economists, including Appleton-Young, expected long-term rates to be near 7% by now. That hasn’t happened, and she predicted Wednesday that long-term rates would rise to 6.4% by next year.
“Everybody that forecast the market this year was wrong,” she said.
The projected rise in rates will shrink the percentage of California households that can afford a median-priced house to an all-time low of 15%, her group said.
