Wednesday, September 21, 2005

‘Slight Cooling’ in 2006 says C.A.R.

The Callifornia Association of Realtors, which is holding its annual convention this week in San Diego, today released its Market Forecast for 2006, which says that a "slight cooling" is coming on. That means a drop of about 2 percent from 2005 to 2006, according to the C.A.R. economists' projections. That's the part you can disagree with based on whether you think we're in a housing bubble, and whether it's about to pop. What's not debatable is the fact that California's household tally increases by 250,000 a year and yet only about 200,000 units are going to be built this year. It doesn't take much more than an elementary understanding of addition and subtraction to comprehend that the California housing market is still in for a world of hurt, regardless of whether the bubble pops.

What I think gets lost on a lot of real estate blogs like this one is that we're talking about people and the basic need for shelter. Every additional household that squeezes into California puts more strain on the quality of life. Although the newscasters only seem to notice the additional clogging on the freeways, it also causes some serious pain for families who are finding it increasingly difficult to afford to keep a roof over their head, whether they rent or own. The influx of residents without an accompanying provision of additional housing denies people the American Dream that they've been chasing from high school on through college and into their careers. When a person making $100,000 a year can't afford to purchase a median-priced home there's something horribly wrong. Welcome to California.

Here's the text of the Callifornia Association of Realtors release:
SAN DIEGO (Sept. 21) – The rate of home price appreciation will moderate next year following four years of steep increases, while sales in 2006 will decline slightly from this year's record pace, according to the California Association of REALTORS® (C.A.R.) "2006 Housing Market Forecast" released today. The forecast was presented during the C.A.R. Centennial REALTOR® EXPO (, running from Sept. 20 - 22 at the San Diego Convention Center.

The median home price in California will increase 10 percent to $575,500 in 2006 compared with a projected median of $523,150 this year, while sales for 2006 are projected to reach 630,610 units, falling 2 percent compared with 2005. The double-digit gain in the median price of a home, which California has experienced for most of the past five years, will again be fueled by the continuing shortage of housing across much of the state, according to C.A.R. economists. California typically gains nearly 250,000 new households, yet only will build about 200,000 new housing units this year, creating a shortfall of about 50,000 units.

"Weexpect the fixed mortgage interest rate to rise to 6.4 percent next year, and the adjustable rate to hit 5.1 percent, which will make it more difficult for many families in California to be able to afford a home," said C.A.R. President Jim Hamilton. "While still near their historic lows, up-ticks in interest rates coupled with the continued increase in the median home price will push affordability in California to a new all-time annual low of 15 percent next year.”

"The economic fundamentals at both the state and national level continue to support a strong housing market in the Golden State for the foreseeable future,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “However, we also expect that the wave of new loan products that have flooded the market over the past several years have injected a higher level of risk into the market, while affordability barriers to homeownership will continue to push residents inland and even out of state.

“Declining affordability will constrain sales in 2006 at a greater rate than we’ve previously experienced, especially in markets where there are higher price points compared with the state as a whole,” she said. “Not all areas of the state will continue to experience the unprecedented double-digit median price increases of the past five years. Some high-cost areas, especially those in the more costly coastal regions, face a potential leveling off of median price gains compared with the 10 percent gain we expect for the state as a whole.”

Home sales for California in 2005 are expected to reach a record 643,480 units, surpassing the prior sales record of 624,740 set in 2004, according to C.A.R. economists.

Leading the Way...® in California real estate for 100 years,the California Association of REALTORS® ( is one of the largest state trade organizations in the United States, with more than 180,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

— The Boy in the Big Housing Bubble