Thursday, December 16, 2004

Economists: Home prices will continue to climb, but more slowly

Economists: Home prices will continue to climb, but more slowly

SAN DIEGO ---- Home prices will continue to appreciate in North County as in the rest of San Diego County in the coming year, though not as fast as they did in 2004, a group of economists and graduate students predicted at a residential real estate conference Thursday.

The gathering at the University of San Diego's Burnham-Moores Center for Real Estate listened as speaker after speaker said there simply is no evidence to support the notion that the region is experiencing a housing bubble that might burst at any time.

"Housing bubble" is a term used to describe panic- or greed-driven buying that pushes prices to artificially high levels. When the buying fervor subsides, prices tumble because economic factors such as scarcity do not support them, and the bubble is said to have burst.

"My conclusion is that the San Diego economy will outperform the rest of the state, and though the single-family housing market will cool, it will not collapse," said Alan Gin, a professor of economics at USD. "My outlook is for relatively stable housing prices, slowing in their rate of growth."

Gin said that instead of seeing prices fall, he expected to see the length of time needed to sell a house gradually lengthen.

He added that being an economic forecaster in San Diego is a lot like being a weather forecaster in San Diego: "How many ways can you say '70s, with no rain'?"

Gin cautioned, however, that there is a wild card in the region's economy in the price of gasoline, and that it had the potential to tarnish the luster of regional economic growth.

"If you increase the price of gasoline 10 cents, it takes $7 million per month out of the San Diego economy," he said. Then, noting that gas prices could reach the $3 level next summer, he said that a 50-cent bump would sap the economy to the tune of $35 million per month.

But directing attention to the question of a real estate bubble, "It's Economics 101," he said, explaining that a shortfall in the region's housing supply even as demand keeps rising means that prices will continue to be bid upward.

The conference dealt with the San Diego region as a whole. But many of the graduate students, who are enrolled in a class in quantitative forecasting techniques, focused their attention on limited geographic areas. Their projections for most of those areas mimicked the anticipated performance for the entire county.

Evaluating historical data supplied by Marketpointe Realty Advisors, Renzo Marsano, a candidate for a master's of business administration degree, forecast real estate activity for Fallbrook, San Marcos, Vista, Escondido and a portion of Oceanside.

In those cities, he projected, there is likely to be substantial cooling of residential sales and price growth, but trend lines will continue to slope upward.

"Median prices of detached homes took off (in) mid-2003 and have just recently started to cool down," he said. "The sudden increase in prices seems to have peaked ... the hike in interest rates and excess inventory will even out median prices in mid-2005."

Nevertheless, Marsano said he expects to see the median price nearly $40,000 higher at this time next year.

One factor he identified as helping to cool North County's prices is increased residential construction in Southwest Riverside County.

Demographer Dowell Myers of the University of Southern California said he thinks the nature of housing in San Diego County will have to change over the next few decades.

"Everything argues in favor of higher-density housing except for one thing," he said. "The neighbors!"

Myers noted that population growth in San Diego County is slower than had been projected, possibly as much as 20 percent slower. That, coupled with uneven age-group distribution that left the area with disproportionately few young adults in the past decade, left the county focused on single-family homes. But increasing numbers of 20somethings in the coming decade will demand apartments and condominiums, he said.

"Also, we like to think that immigrants are different ---- that they really don't need housing," he said. "Unfortunately, there is some truth to that: They live in higher-density homes. But the longer they live here, the more likely they are to adopt the same preferences the rest of us have, and they too want less housing density."

The total number of foreign-born residents in San Diego County will continue to grow over the next two decades, he said, but the percentage who are newcomers will decline, which means that their housing preferences will shift away from higher-density to lower-density housing, adding to the area's difficulty providing adequate numbers of homes ---- and buoying prices in the bargain.


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