In its 2005 Housing Market Forecast, economists from the California Association of Realtors theorize the median home price will rise 15 percent next year to $522,930, compared with a projected median of $454,720 for 2004. The double-digit price gain is being attributed to demand outweighing supply. [Staff file photo]
Despite slowing in the housing market, the state's median home price should top $500,000 in 2005, according to projections released Wednesday by the state's largest real estate association.
In its 2005 Housing Market Forecast, economists from the California Association of Realtors theorize the median home price will rise 15 percent next year to $522,930, compared with a projected median of $454,720 for 2004.
But CAR also forecasts home sales will dip by 2.5 percent to 603,700 compared with 2004's record numbers.
"The Southern California housing market in 2005 is likely to slow from the torrid pace of sales and rapid price appreciation that we experienced throughout most of this year,' said Leslie Appleton-Young, CAR's vice president and chief economist.
Nonetheless, Appelton-Young pointed to the Inland Empire as one of the areas likely to see the most home sales growth due to population increases and "robust new home-building activity.'
The organization attributes continued double-digit price gains primarily to supply outweighing demand. Whereas California's population grows by about 250,000 households a year, only about 200,000 new homes are built, the organization reported.
High home prices and mortgage rates they predict will approach 7 percent by the end of 2005 will contribute to a slight decline in sales, according to CAR economists.
Housing affordability the percentage of households able to afford the median-priced home will fall to an all-time annual low of 16 percent in 2005, according to the group.
Norman Cox, regional vice president of Coldwell-Banker Town & Country in West Covina, said he thought the association's prediction of 15 percent price jumps was a bit high.
"I would think that price increases would moderate a little bit more than that, to say 10 or 12 percent, but it's not a big difference ... when you're crystal-balling it,' said Cox. "That's not to say that we won't have a good year, but I don't think that prices will go up that much looking at recent trends because there is a definite pulling back in the local marketplace.'
Raphael Bostic, director of the Casden Real Estate Economics Forecast at USC's Lusk Center for Real Estatecolor>, said he thinks the predictions are reasonable because he also expects the market to remain strong as it stabilizes in the coming year.
"We're looking at a market that should be cooling down and we've had that,' Bostic said. "We've recently had 20 percent price increases, so some backing off of that is to be expected.'
In spite of the probability of rising interest rates, he said market dynamics "suggest that we should see continued strength in terms of pricing.'
Former state controller Kathleen Connell, now an economist with UC Berkley's Haas School of Business , said last week at a presentation in Pasadena that price appreciation will soon stabilize at a lower rate between 6 percent and 8 percent.
"The market is still strong, but it is nowhere near what it was,' said Connell. "I do think that there is going to be some disappointment from those people who use their house as a cash cow ATM machine.'