By JAMES B. KELLEHER
Researchers at Chapman University warned today that Orange County is in the midst of a "housing price bubble" that is rapidly nearing its end.
Writing in their latest forecast for the region, the researchers backed off their earlier prediction that O.C. home prices will fall in 2005, saying persistently low mortgage rates had postponed the day of reckoning.
But they said that they expect local home prices to rise this year at their slowest pace in nine years and then to begin slowly dropping in 2006 as mortgage rates rise.
Although the researchers acknowledged some of the fundamentals remain positive, they said they’re worried by the increase in speculative purchases locally, as well the plunge in affordability, which has driven more homebuyers into adjustable-rate and interest-only loans.
The school’s researchers, who admit they’ve been "wrong in forecasting housing prices" for three years running, said they don’t expect their latest prediction will sway those who argue there is no bubble, a group that includes USC’s Lusk Center for Real Estate.
"In the end, however, economic factors rule," the Chapman researchers said. "That is why we are confident that housing appreciation will drop dramatically. And we strongly believe it will occur sooner rather than later."