Most housing markets experiencing slowdowns aren't facing fundamental economic problems like job losses and out migration and will see prices correct, rather than collapse, in 2007. Delores Conway, director of the Casden Real Estate Economics Forecast at the University of Southern California's Lusk Center for Real Estate, doesn't expect mortgage rates to go up or down more than 50 basis points in the year ahead because of "a huge flood of global capital looking for places to invest." But the panel agreed that credit could tighten next year if there's a dramatic rise in delinquencies and defaults on nontraditional loans that helped fuel the housing boom. The growing U.S. budget deficit and foreign trade imbalance could also put pressure on interest rates, some said. Richard Powers, general manager of GMAC Residential's Ditech Home Loans, said he expects loan originations will fall between 5 percent and 10 percent in 2007, but that interest rates will remain "very competitive." Conway agreed with Lereah that "the housing market is correcting, and we are going to see further correction into 2007, but not a collapse." The rest of the country, by contrast, is experiencing an economic slowdown, but remains healthy, Conway said. "Job growth is steady, we have low unemployment at 4.4 percent nationwide, and stable, long-term interest rates. These are all solid indicators holding up the economy." Conway noted that parts of the Northwest, including Washington, Oregon, Idaho and Utah, are still experiencing double-digit price appreciation. "The housing market is still very much local," Conway said. In a market like Las Vegas, where new construction was driven by investors and speculators, prices could come down 10 percent or more, Sklarz predicted, with luxury condos hit harder than other types of housing. Conway said housing starts in the Las Vegas region are already off as builders react to the slowdown. "Builders responded pretty quickly," Conway said. "Many of those projects are not coming out of the ground." As is the case in parts of California, constraints on land use limit housing supply and bode well for the long-term health of the Las Vegas housing market, Conway said. Conway said Chinese investors continue to buy high-rise condominiums in Las Vegas, often for use by corporations, and that foreign investors have a "big interest" in California. Rising rents in California have helped long-term investors profit from rental properties, she said.
December 12, 2006