California Markets Stabilizing, But Home Prices Raise Questions
With California’s economy performing well, a panel of economists from the University of Southern California's Lusk Center told a PCBC audience in San Francisco last month that the long-term outlook for the state’s housing industry looks promising and the current marketplace for the most part is showing encouraging signs of stabilizing.
The crucial difference between the state’s housing downturn of the early 1990s and the situation today, panelists assured worried builders, is that major markets, such as Los Angeles, were hemorrhaging jobs then but are still adding them now.
The state’s sky-high housing prices, on the other hand, raise some unique challenges and will be a deterrent to migrants in the country who are looking for new places to move.
In 2000, the cost of housing was 150% higher in California than in Texas, according to Dowell Myers, professor of urban planning. Today, buying a home in California costs 355% more than in the Lone Star State, and home prices are running roughly nine times average income.
As significant numbers of aging baby boomers start selling their homes, the question is who will buy them, Myers said, and that could have serious implications for trends in home prices.
For instance, a major source of housing demand will be coming from young Hispanic households, he said, but they will only be able to enter the market at a buying price that is 25% lower than what older white sellers will be asking for their homes. “Latino buyers can’t quite pay the full price,” Myers said.
While the West has clearly led the rest of the nation in house price appreciation, Raphael Bostic, director of the Master of Real Estate Program, pointed to some big changes afoot in the region, with Utah, Wyoming, Idaho, Washington and Oregon now the hot spots, and prices in California, the previous hot spot, now moderating.
Market fundamentals for housing look promising in Oregon, Salt Lake City and Idaho, he said, with the outlooks less certain in Nevada, Denver and Arizona.
Within California, the San Francisco Bay Area, Los Angeles and the Central Coast look positive, he said.
After seeing its home prices double within four years, California is now experiencing price appreciation that is flat or in the single digits in all of its major cities, said Delores Conway, director of the Casden Real Estate Economics Forecast.
In Los Angeles, annual home price appreciation slowed from an annual rate of 15% in March of 2006 to a rate of 7% during the same month of this year, according to sales statistics from DataQuick.
In Orange County, prices declined from 10% to 1% over that same period. In the Inland Empire, where sales during this year’s first quarter were down 32% from a year earlier, the rate of price appreciation for the March to March period dropped from 9% to 2% in Riverside and from 23% to 1% in San Bernardino.
In San Francisco, home sales were up 11% but down 10% in Marin and price appreciation for the entire area dropped from 10% to 1%. Sales in San Jose/Santa Clara were down 6%, and price growth slowed from 9% to 2%.
More problematic markets in the state, said Conway, include Sacramento, where sales during this year’s first quarter were down 25% and the lowest in six years and median home prices dropped about 4% from March to March.
Sales in San Diego were down 9% in the first quarter of 2007 compared to the same period of 2006 and the market is beginning to stabilize, she said, but median home prices were down 2.8% this March from a year earlier.
With the exception of Sacramento and the Inland Empire, apartment markets have been tight, with an occupancy rate of 96% or higher and rents increasing at a yearly clip of 5% to 10%.
San Francisco, San Jose, Orange County and Los Angeles County have the highest average rents in the nation, Conway said.
Construction Forecast Conference Discussions Now Available on the Internet
The simultaneous Webcast of the Construction Forecast Conference — Spring 2007 held in Washington, D.C. on April 26 is available for purchase for the next three months.
Those interested can purchase the conference Webcast, which includes panels of nationally recognized experts discussing economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys.
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