Home sales should dip
Realtors'market forecast still sees 15% hike in prices
By Gregory J. Wilcox
Staff Writer
California's median home price will maintain its record pace next year, reaching above $500,000 for the first time, but appreciation will ease as sales fall to their second-highest level, according to a forecast released Wednesday.
During 2005 the median price of a single-family home is expected to jump 15 percent to $522,930, according to the annual market outlook from Leslie Appleton-Young, vice president and chief economist for the California Association of Realtors. Sales next year are expected to decline 2.5 percent to 603,700 units, she said, as interest rates approach 7 percent.
This year's median price -- the point at which half the units sell for more and half for less -- is expected to soar 22 percent to $454,720, while sales should increase 2.9 percent to 619,300 units, both records.
While appreciation is expected to slip 7 percentage points next year, prices will still make substantial gains.
"It's still above what I call a long-term sustainable level," Appleton-Young said of the equity gain.
Prices appreciated an average of 7.4 percent in 2000 and 8.7 percent the next year. Then they overheated, increasing an average of 20.5 percent and 17.9 percent the next two years.
Tight inventories in many markets and strong demand have been the price driver and supplies are now building.
California typically gains nearly 250,000 new households annually, yet developers will probably only build about 200,000 new housing units this year, creating a shortfall of about 50,000 units, the forecast said.
Demand will stay strong even though buyers are gaining a bit more leverage.
"It's not scary like the early 1990s but a market that is more normal, where you can go out and see three or four homes," she said of the rise in inventory from critically low levels.
This kind of market rebalancing has been expected, said John Karevoll, an analyst at DataQuick Information Systems.
"What still is most noticeable, at least to me, is the volatility beyond the half-year out is much greater than we've had ... for the past 15 years. There are some ifs, ands and buts out there, and we just don't know how they will play out," he said.
Chief among them are the election, what Federal Reserve Chairman Alan Greenspan will do with short term interest rates and whether he's replaced if the Democrats gain power.
The picture will likely clear after the election, he said.
Appleton-Young also predicts modest gains in job growth of 1 percent this year and 1.9 percent in 2005. Unemployment will remain flat -- 6.2 percent this year and 6.1 percent next year, she said.
Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said the Realtors' forecast is in line with others, though it may be at the high end regarding interest rates.
And it may startle some real estate bears.
That's because population growth will continue and the housing shortage is not going to get much better.
"The price increase is going to surprise a lot of people. So many are looking for the the market to level out and the bears are looking for a bursting of the bubble," Kyser said.
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