Analyst: Home Prices to Rise in 2006

RISMEDIA, Sept. 23, 2005 — (KRT) — Leslie Appleton-Young used an image of a pink, sudsy “housing bubble” bath to clean up any questions about whether California’s sky-high home market is due for a crash.

The only bubble out there, “has been a bubble in articles about the housing bubble,” said Appleton-Young, chief economist for the California Association of Realtors.

California home prices will go up 10 percent in 2006, Appleton-Young predicted at the association’s convention in San Diego.

At that rate, the median price of a California single-family home will hit $575,000 next year, with appreciation rates and sales slightly below 2005 levels.

“Prices throughout the state in general are going up at a slower pace,” she said.

Appleton-Young cited a wide variety of economic factors to offset those who say that California home prices are unsustainably high.

Among them: demographics (baby boomers are hitting peak earning power and plowing that cash into real estate), investment shifts (people are pulling their money out of stocks and investing in real estate), and supply shortages (sale listings are well below buyer demand).

Add to that strong job growth and what she called the national “Goldilocks” economy (“Everything seems to be going just right”), and you get growth, not a crash, she said.

“It’s very important to root (conclusions) in reality,” Appleton-Young said. “The housing market is reflective of underlying conditions.” And unlike the stock market, even when things do go badly, homeowners tend to hang on to their houses until the market turns around.

Still there are some worrisome factors on the horizon, she noted.

In addition to rising inflation and oil costs, a wave of new loan products could lead to increased foreclosures if market conditions worsen.

Other predictions: The number of people able to afford a detached home in California will drop to 15 percent in 2006, an all-time low.

Price gains will be lower in more expensive housing markets like Orange County’s coastal areas.

The greatest appreciation and growth will occur in the most affordable areas. The Central Valley of California will be unrecognizable in 20 years due to growth, she said.
Interest rates will increase slightly next year, to 6.4 percent for a 30-year fixed-rate mortgage and 5.1 percent for a one-year adjustable-rate mortgage.

California Real Estate Commissioner Jeff Davi, a former Monterey Peninsula broker, concurred with Appleton-Young’s forecast, saying that the housing market is due for “a soft landing at worst.” “This market is strong. It’s stable,” Davi said. “We all know from history, it has to level off.” Conference attendees from Orange County lauded the report.
“It’s much better than a bubble that’s bursting,” said Fran Andersen, an account executive for the Bank of America’s mortgage division in Laguna Niguel.

“I agree with (the forecast),” added Ali Mortazavi, CEO of River Rock Real Estate & Loans of Irvine. “That’s what we were saying (for months). We don’t think there’s going to be a correction.” Ann Pettijohn, an Orange broker and former state association president, noted that a leveling off of prices will allow some buyers to catch up with the market, while still providing appreciation for homeowners.

“Let’s face it,” Pettijohn said, “we want to have housing available to everyone.”

Appleton-Young voiced similar concerns during her speech. The bad news is that high prices increasingly leave out first-time homebuyers, leading to a homeownership rate in California that’s 10 percent lower than the national rate.

“It’s really that schism between the housing haves and the housing have-nots that we all need to be concerned about in California,” Appleton-Young said.

Commercial real-estate forecast Commercial-property owners should do well in 2006, with vacancy rates down and rents up, according to the California Association of Realtors’ 2006 commercial real-estate forecast.

Forecast highlights include:

• Apartments: population growth will lead to more demand for rental housing in Southern California.
• Office: Economic expansion and job creation is lowering vacancy rates, with Orange, Ventura, San Diego and Inland Empire counties being among the nation’s strongest markets.
• Industrial: Driven by manufacturing and transportation logistics, Los Angeles, the Inland Empire and, to a lesser extent, Orange County are poised to see greater demand.
• Retail: Orange County has one of the nation’s strongest retail markets, leading to lower vacancies and higher rents. 

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