California's median resale housing price will jump 10 percent more next year to a record $344,300, but sales will slow down from this year's record pace, a trade group said Thursday. The 530,900 sales predicted for next year, a 3 percent decline, still reflects a strong market, Leslie Appleton-Young, vice president and chief economist for the Los Angeles-based California Association of Realtors, said in her annual forecast. Last October, in her forecast for this year, Appleton-Young predicted that the median price would increase 6 percent, to $279,000. But it now should top out at $313,000, she said. A year ago she predicted that 2002 sales would decline 5.9 percent, to 503,900 units. But it now appears they will increase 8.5 percent, to 547,300 units. Historic-low interest rates, a bear stock market, strong demand and a limited inventory combined to squeeze a record performance out of the real estate sector this year, said Appleton-Young. The robust real estate sector and California's diverse economy also helped insulate the state somewhat from the national recession. "California weathered the economic slowdown better than the nation over the past 18 months, and is expected to show faster job growth than the nation as a whole in 2003," Appleton-Young said. There is no indication that any of these factors are going to soon change, either. Most notably, the Dow Jones Industrial Average dropped to a five-year low this week and interest rates for a 30-year fixed mortgage sank to 5.98 percent, the sixth record low this year. Even if interest rates start moving back up they will likely remain low enough to cancel out the sticker shock of rising prices. For example, in Los Angeles County during August only 30 percent of households could afford the median-price home, a decline of 3 percentage points from the year-ago period, Realtors said. Buyers don't appear fazed by this, though. "People aren't looking at the price of the house, they are looking at their monthly payment," Appleton-Young said. And while the stock and mortgage markets might reverse direction there won't be any change in the supply-and-demand equation. Most California markets simply won't have enough product next year to keep pace with demand, a situation that equals rising prices even though sales could taper off. California typically adds 220,000 to 250,000 new households each year, yet only builds about 150,000 new housing units annually, the Realtors group said. Realtors President Robert Bailey said sales next year will just moderate to a more sustainable level. "The overall health of the residential real estate market will depend on regional job growth and continued favorable interest rates in the coming months," he said. Economists agree that job growth will vary around the region, with the biggest percentage increase taking place in the Inland Empire and the smallest occurring in Los Angeles County. The Inland Empire should have a 4 percent to 5 percent increase in jobs while Los Angeles County's job growth will just climb 1 percent, said Raphael Bostic, director of the Casden Real Estate Economic Forecast at the University of Southern California. Location and a smaller population base are the main reasons why the Inland Empire enjoys a bigger percentage increase in jobs, he said. "You have a lot of cheap available land so it's attractive for businesses to locate there and for households to find places to buy homes," he said.
December 12, 2002