Information is confirming hearsay that our housing boom, which has gone on for the past five years is plateauing. Homes are staying on the market longer - close to four months this year, as compared to three last years — and sellers in some cases are cutting asking prices. Still, analysts feel that there is still enough demand in the market to keep prices from rolling over. Keep in mind that approximately 250,000 households move to Los Angeles each year, while new housing is built for 200,000.
"I don't see any signs of weakening. The market just isn't frenzied anymore," observed John Karevoll, DataQuick's chief analyst.
The UCLA Anderson Forecast - considered to be one of the most accurate housing forecasters predicts that, “The California economy will probably experience sluggish growth in 2006 but should avoid a recession if, as expected, housing prices cool without crashing.”
The forecast also sited the possibility of additional uncertainty when Federal Reserve Chairman Alan Greenspan retires in January after 18 years, leaving Ben Bernanke to steer the economy.
On December 12th, the Federal Reserve pushed the prime interest rate up to 4.25% - the highest level in 4 1/2 years. This marks the 13th consecutive quarter-point move since the Fed began raising interest rates in June 2004, when the funds rate was at a 46-year low of 1%. Some analysts believe that the Fed will raise rates at least one more time by a quarter-point at Alan Greenspan's last meeting as Fed chairman on Jan. 31.
The powers that predict real estate cycles don’t seemed to be worried
about a downtown. The question in California is how long the current pace
of property price increases can be sustained? Cynics were predicting that
we would drop down to single digit appreciation in 2005. Now those same
pundits are predicting 2006. Feel peaceful, no one is predicting price
declines at this point in time.
“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,”
states Appleton-Young. “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.”
For the California real estate market to tank, the state and national
economies would have to slow and there would have to be job losses to
generate price declines. We saw those in the earlier ‘90s, but that
was after nearly two decades of state governors (Nixon and Reagan) becoming
president. Money that was coming to the West Coast for business development
was moved to the South - land of the Bush clan, Bill Clinton and
Al Gore. More on the impacts of a softening real estate market coming
your way soon.
