Wednesday, October 15, 2008

Realtors’ 2009 California Housing Market Forecast

From the California Association of Realtors

Wednesday, Oct. 15, 2008

C.A.R.'s California Housing Market Forecast for 2009:

Statewide median price decline to level out, sales will continue to rise

LOS ANGELES (Oct. 15) – Home prices throughout most areas of California will post declines next year, while sales of existing homes will continue the rise in 2009, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) "2009 California Housing Market Forecast" released today. The forecast will be presented this afternoon during CALIFORNIA REALTOR® EXPO 2008 (, running from Oct. 14-16 at the Long Beach Convention Center in Long Beach, Calif. The trade show attracts more than 10,000 attendees and is the largest state real estate trade show in the nation.            

“The current uncertainty about the financial system and economy is likely to persist over the next several weeks, and could extend into next year,” said C.A.R. President William E. Brown. “Our forecast assumes that the financial system will begin to show signs of stabilization late in 2008 and into early 2009.

“We expect that the economy will be at its weakest period over the next three quarters through the second quarter of 2009, with recessionary economic conditions throughout that time period, before we begin to see a turnaround in the second half of next year,” he said. “Going forward, a great deal depends on the state of the financial system in general and the real estate finance situation in particular, as well as the flow of distressed sales through the market. We expect sales of distressed properties to peak in early 2009 – a critical factor in the housing market that directly impacts the timeframe for stabilization in the median price.

“Looking ahead, home prices and favorable interest rates in 2009 will contribute to gains in affordability,” Brown said. “However, we need to move through the current financial crisis and restore the flow of credit so that qualified buyers are able to take advantage of improved affordability and successfully purchase homes.”

The median home price in California will decline 6 percent to $358,000 in 2009 compared with a projected median of $381,000 this year, according to the forecast. Sales for 2009 are projected to increase 12.5 percent to 445,000 units, compared with 395,600 units (projected) in 2008.

“Sales in 2008 will be ahead of last year by 12 percent, with a further increase of 12.5 percent expected in 2009,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “However, the next couple of quarters in late 2008 and early 2009 will be marked by seasonal decreases in activity, with a pickup expected by the second quarter of next year. At 445,000 units sales projected in 2009, the sales environment will be well above the low point of 265,000 units in late 2007.

“The median price will be influenced through the balance of 2008 by the typical seasonal decrease in home prices as well as ongoing downward pressure from distressed sales,” she said. “For all of 2008, the median price is expected to fall by 31.7 percent from $558,100 to $381,000. Next year, we’re projecting that the median price will show a 6 percent decline to $358,000.”

The Los Angeles Times notes:

Realtors tend to be optimistic, and the association's forecast last year of a 4% decline in the median price of a California home in 2008 proved to be off by a factor of eight. The group also foresaw a 9% drop in sales -- about a third of the actual decline.


Prices won't start to head up, the association said, until inventory thins out. In January, there were so many homes for sale in California that it would have taken 16.9 months to deplete the supply at a normal sales rate -- and that's not even counting the new homes that were likely to come on the market during that time, the association said. In August the supply fell to 6.7 months' worth, aided in part by the spike in sales in Riverside and San Bernardino counties.

But additional notices of default and foreclosure are expected in 2009 when a new wave of adjustable mortgages will reset. That will continue to push down the median price of homes statewide, possibly into 2010, said Raphael Bostic, an associate professor at the USC Lusk Center for Real Estate.

"Prices could inch up month over month next year, but a lot of moving parts have to align in the economy for that to happen," Bostic said. "And assuming mortgages are plentiful."

That, economists agree, is the big "if" hanging over the real estate market.

Currently, conforming 30-year loans ($417,000 and less) are available to qualified buyers -- those with 10% to 20% down payments, proof of income and excellent credit scores. So-called jumbo conforming loans of $417,000 to $729,750 are more difficult to qualify for and have higher rates, so buyers in that range haven't embraced them. Loans greater than $729,750 are practically nonexistent, putting purchases in California's pricier areas in virtual lockdown. That situation could get worse when conforming loan limits drop to $625,000 in January.
"Rates will play a big role," Appleton-Young said. "They always have."