Leslie Appleton-Young, the chief economist for the California Association of Realtors, has forecast that California home prices will rise for the first time in three years in 2010, but that home sales will decrease slightly. The annual CAR forecast projects that the median house price will increase 3.3% to an annual average of $280,000. But CAR projects that sales will decline 2.3% next year.
We spoke with her recently about what she sees for the housing market in the year ahead.
Us: This is the first time in three years that you project a price increase. Is that significant?
Leslie: Yes, but we’ve already seen prices rising. Starting in March of this year the median (home price) has gone up or been flat every month. Obviously there’s some seasonality in pricing. But February, the median was $245,000, and our latest August number was $292,960.
In 2009, it was down significantly. In 2010 it will be up slightly. Essentially you have prices rising since the spring.
I think that the other thing that’s important to understand is that the statewide median only gets you so far. And what’s really happened in California is you have two distinct markets: The distressed market and the moderate and upper-end market. And you’ve had a very sharp change in the composition of what’s selling.
You know that sales dropped sharply in 2006 and 2007. The median home price didn’t start to go down until September of 2007 when we hit the credit freeze, and that’s because the moderate and low end of the market, the distressed market, was shrinking. Those homes weren’t available yet. Those people were getting their NOD’s (notices of default), not paying their mortgages, but (those homes) weren’t back on the market. That began later.
The upper end of the market up until the end of the summer of 2007 was holding up very well. When the credit freeze hit, everybody was impacted, and that’s when you started to see the statewide median go down.
I think that’s one of my core messages. You need to look beyond any statewide, regional, city data. …
The interpretation that every house in California is going experience a modest increase in price next year is really not a very appropriate way to interpret the data.
Us: What is?
Leslie: Some homes will see a stronger increase in prices and others will see a decline.
Us: What’s the outlook for Orange County?
Leslie: It depends on which part of Orange County you’re looking at. The parts of Orange County with a heavy presence of foreclosed properties is going to be very active, and you’re actually going to see some firming in selling prices in those areas because the demand is strong.
I think in the coastal, higher-end communities where you haven’t seen much price softening yet, as some of these home sellers are impacted by the economy, they’re going to be in a position where they are not discretionary sellers. And they’re going to have to look at listing prices that may not have seemed reasonable three years ago but now are a reflection of the market.
Orange County has had a tough time this cycle. You started to see job losses before any other county because you had the subprime lenders headquartered in Orange County, you had several builders, and so on, and they started to feel the impact of the subprime crisis before you really started to see it show up — at least in jobs — anywhere else.
Us: Do you think the price will increase because things are getting better or because things are staying the same?
Leslie: I think you’re going to see continued strong demand at the low end of the market because these properties are extremely affordable. Many of them are bargains. And the financing is good.
You have Fannie and Freddie, you’ve got the Fed and the Treasury buying mortgage-backed securities. So that’s in addition to the first-time homebuyer tax credit.
That’s one of the wild cards for next year. Will we see it extended through next year? It looks promising, but it hasn’t been decided yet.
Us: Will 2010 be the bottom?
Leslie: We already bottomed in terms of transactions two years ago. So if you’re asking me will it be the bottom in terms of median home price, no, because I think statewide the bottom occurred this year.
If you’re comparing the statewide home price, it’s going to be higher next year than it is this year. And this year, was lower than it was last year. If you look at transactions, you’re going to see a little bit of a pull back from the highs of 2009, but it’s (going to be) still a pretty strong level.
I would describe this as a very elongated U in terms of recovery. The issue of jobs is critical in terms of mapping the trajectory of this market. Now you’re seeing an acceleration of foreclosures at the upper end of the market with white-collar layoffs.
Us: Why did you forecast a decrease in sales next year?
Leslie: It just reflects the job market and the continued high levels of unemployment and the bite being taken out of discretionary sales.
The distressed part of the market can only do so much. And to be perfectly frank, the 540,000 sales in 2009 is pretty robust. In any other type of market it would be viewed as an extremely strong, healthy type of a market. In today’s world, you can’t separate it from what’s gone on before.
We’re concerned about jobs and we’re also concerned about whether we’ll have a first-time homebuyer tax credit. Once some of these other items get in place we may revisit that. We try to be conservative because there’s just too much uncertainty in the world.
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