Housing market outlook darkens
Economists say slowdown in sales hints at decline
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER
December 7, 2005
The nation's housing market is in a "perilous position" that could slow the broader economy, but it is unlikely that a drop in home prices will prompt a recession, according to the latest assessment of the economy from the UCLA Anderson Forecast.
In their quarterly economic forecast to be released today, the UCLA economists said that a slowdown in home sales and single-family home construction is a sign that the housing market may be on a decline.
The Anderson Forecast, one of the state's most respected panels of economists, has been predicting a housing slowdown for the past couple of years, even as housing prices have skyrocketed.
Earlier this year, the forecast predicted that the slowdown would occur in mid-2005. In today's report, the economists have pushed their prediction to early 2006.
"Such turns do not always take shape as soon as one might think they should," said Michael Bazdarich, a senior economist of the forecast. "So a little patience in calling and waiting for them is usually a wise take." Nevertheless, Bazdarich stressed, evidence of the slowdown is mounting.
Nationwide, for instance, the number of permits for new home construction dropped 5.6 percent between September and October. The 2 million home starts in October was one of the lowest figures this year.
Change in real estate sales, Oct. 2004 to Oct. 2005
Riverside 9.3%
San Bernardino 7.0%
Orange 3.0%
Los Angeles 0.9%
Santa Clara 1.5%
Sonoma 1.8%
Marin 2.2%
Ventura 2.8%
Solano 4.3%
Contra Costa 6.6%
San Francisco 6.9%
Napa 9.2%
San Mateo 10.2%
Alameda 11.0%
San Diego 12.7%
SOURCE: DataQuick Information Systems; www.DQNews.com dqnews.com
While home construction typically slows in autumn, it has been accompanied by a decline in applications for home mortgages, which have trended downward since late September.
In California, homes are generally staying on the market longer than they have for several years, the report said. And there have been sharp declines in home sales led by San Diego County, the San Francisco Bay Area and the northern Central Valley.
Home sales in San Diego are 12.7 percent lower than last year, the sharpest drop of any major urban county in the state. The Bay Area is down an average of 7.2 percent, and home sales in some rural counties around Sacramento, such as El Dorado and Placer, have dropped more than 20 percent.
UCLA economist Ryan Ratcliff said that it appears that Wall Street investors are beginning to bet on weaker real estate markets in the near future. Ratcliff noted that the stock prices of all major builders in Southern California have been falling since July, even as the broader market has risen.
"This is hardly conclusive evidence," Ratcliff said. "But it does show investors are willing to put their money where their mouth is on a real estate slowdown in 2006."
Adrian Fleissig, an economist at California State University Fullerton, challenged the notion that the housing market would decline. Instead, he said, the market would continue to grow, but at a much slower pace.
"Appreciation in home prices is still growing," he said. "In California, for the most part, we will generally see some increases in median house prices, although there may be some regions that will experience a decline."
But the UCLA economists say that some regions are already softening. Some time next year, housing problems will cause "inevitable weakness in the U.S. economy," said Edward Leamer, director of the forecast.
Leamer said he expects that up to 500,000 construction jobs will be lost as the slowdown continues. He does not expect unemployment to rise high enough to prompt a recession, since employment in other industries is growing by 2 million per year.
Mike Tristany, a real estate agent specializing in the Hillcrest, Mission Hills, Talmadge and Kensington neighborhoods of San Diego, cautioned that in the local market the slowdown may be seasonal.
"We've had a scenario in the last two years where the third and fourth quarters seemed to slow down, but as we got to January things started to pick up again," he said. "It's the holiday season right now, so it's not a good time to judge. I'm anticipating a reasonable first quarter."
On the other hand, Tristany concedes that sales this year have been much slower than last year. In 2004, Tristany sold about $52 million in homes. This year, he anticipates that the total will be in the mid-$40 million range, although he said one reason for the smaller amount is that he devoted a lot of time and energy to opening a new office.
"The market is stabilizing, which makes it a better market for buyers, but not for sellers," he said. "Properties are taking a longer time to sell."
Stan Sexton, a real estate agent in La Mesa, said that both the number of homes sold and the price tags for the sales are waning.
"Prices have slid even in modest-price homes," he said. "My house would have sold for $550,000 at the peak of the market but probably would go for around $500,000 today."
Sexton said he has handled 25 home transactions so far this year, compared with 32 in 2004.
"There are more sellers on the market but fewer transactions that get into escrow," he said.
He added that one reason agents are handling fewer home sales is that there is strong competition from new agents who entered the market in recent years.
"Real estate's been a dumping ground for the unemployed and underemployed," he said.
signonsandiego.com
--------------------------------------------------------------------------------
Dean Calbreath: (619) 293-1891; dean.calbreath@uniontrib.com |
