Friday, November 26, 2004

Housing experts say cash in now

By J.N. SBRANTI, The Modesto Bee, CA

SAN FRANCISCO — National real estate experts have advice for California homeowners: Sell now.

California home prices have soared 123 percent the past five years, so it's time to cash in, advised Anthony Downs, a real estate economics expert for the Brookings Institution, a nonprofit research organization.

"Sell whatever you don't want to keep forever. No one knows where the market peak is, but this must be close to it," Downs said.

He presented the keynote address this week at the 27th annual Real Estate & Economics Symposium in San Francisco.

The event was sponsored by the University of California at Berkeley's Fisher Center for Real Estate and Urban Economics.

Home ownership must be looked at as an investment, Downs said. So a real estate investment should be balanced with other assets, such as stocks, bonds and cash.

"Too much investment money is looking for property" right now, Downs said, which makes it a seller's market.

Downs wasn't the only expert at the symposium who predicted California's housing bubble soon will burst.

"Home prices have moved up too far, too fast," warned Ken Rosen, who is chairman of the Fisher Center and of the Rosen Consulting Group, which tracks real estate markets. "We always get price corrections after (big run-ups) because homeowners cash out and move out of state."

During the past year, Rosen said, home prices skyrocketed 31.8 percent in Sacramento and 32.1 percent in San Diego. In Atlanta, by contrast, prices went up 3.4 percent.

Rosen said abnormally low interest rates have convinced many buyers — in California and nationwide — to jump into the housing market sooner than they typically would. He said new home sales particularly have increased because of lower mortgage costs.

"These low rates have moved demand forward, so I think we're in for a correction," Rosen said. "Higher rates really are going to change things."

Mortgage rates will rise this year, Rosen predicted. He expects the 10-year bond rate, which is used as a benchmark for many adjustable-rate loans, to rise from its current 4.2 percent to 5.5 percent by the end of next year.

"There's more risk out there. When rates rise, there may be a deflation (of home values)," Rosen said. Rising adjustable mortgage rates also may cause problems for homeowners. "There is a chance for a price correction and defaults and delinquencies."

Not everyone who spoke at the symposium agreed.

Bruce Karatz is chairman of KB Home, one of the nation's largest builders. He sees more good times ahead.

"The doomsayers have been predicting for a number of months that interest rates were going to go higher," said Karatz, noting that rates have stayed steady this year. "I don't see a tremendous fall off in home-buyer demand for some time."

Among KB Home's many current developments are Oakcrest in Modesto, Bridlewood in Patterson, and Autumnwood Estates and Villas in Lathrop.

Even if mortgage rates go up, Karatz is convinced homes will continue to sell.

"Home buyers are driven by events, not by interest rates," Karatz explained.

Builder argues rates' affect is small

He said people buy houses when they get married or divorced, need more space for children, need less space because they've grown older, want a vacation home or need an investment.

Karatz said those events will continue to happen, so homes will continue to sell.

But some big-time real estate investors are moving money out of the housing market.

The California Public Employees' Retirement System, the nation's largest public pension fund, is selling many of its real estate investments.

Michael McCook, CalPERS' senior investment officer for real estate, said the retirement fund has more than $12.1 billion in real estate holdings.

Some of those funds are invested with Hearthstone Inc., which is the financial backer for land development on 865 acres at Bellevue Ranch, the master planned community in north Merced.

McCook said his fund plans to eventually own $16 billion in real estate around the world, but currently is selling some of its property and banking the profits.

"There will be some great opportunities down the road to buy," McCook said. Right now, he agreed, is a good time to sell.


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