Friday, December 17, 2004

Housing prices in county won't wilt, economist says (San Diego, CA)


San Diego County's red-hot housing market will cool down but not burn out in 2005, University of San Diego economist Alan Gin said yesterday at a conference sponsored by the school's Burnham-Moores Center for Real Estate.

Despite a rising inventory of for-sale homes, consumer demand will keep prices strong, he said. Gin noted that the home-building industry has been unable to keep pace with the county's rising population. Despite modest construction gains in recent years, the region has a deficit of about 65,500 housing units, he said.

The local economy added about 16,000 jobs this year, Gin said. In recent months the unemployment rate has dipped below 4 percent, creating an environment most economists consider to be "full employment."

In his 2005 forecast, Gin said the local economy will outperform the rest of the nation and gain 15,000 to 20,000 jobs. However, with most growth expected in the services sector, many jobs will not pay well for a region with sky-high housing costs.

County housing prices fell $2,000 in November to an overall median of $487,000. Even so, they were about 23 percent higher than a year earlier, according to DataQuick Information Systems.

Gin dismissed the idea that the county's high home prices may have created a real estate bubble that will burst. There is no reason to believe that prices will drop steeply, he said.

Gin's optimism was echoed by Leslie Appleton-Young, chief economist for the California Association of Realtors, and Dowell Myers, director of the University of Southern California School of Public Policy.

Appleton-Young forecast that statewide home values will increase by a healthy 15 percent in 2005. She said she had not worked out a specific figure for San Diego County. She noted that widespread use of adjustable-rate mortgages has kept consumers in the costly marketplace.

Myers said entry-level buying would keep California's housing market vital in 2005.

"That is what is keeping the market strong, this infusion of new population at the bottom of the pyramid that is pushing its way up through upward mobility," he said outside the conference. "They shore up the market from the bottom."

Appleton-Young said continued job growth is important to the housing industry. "You don't have a demand for housing if you don't have a demand for jobs," she said. "That's a strength here."

About 350 people attended the center's fifth annual Residential Real Estate Conference at Hahn University Center at USD.

Lucetta Dunn, director of the state's Department of Housing and Community Development, told participants that population growth would continue to place demands on the housing industry. There are about 500,000 new California residents each year, and 80 percent of the growth is from births, she said.

Dunn, a builder by profession, called on local governments to designate enough land for housing to meet their communities' needs for the next two decades. She said she didn't accept the argument that some communities are built out and have no room for more housing. Growth is coming and should be planned for, she said. She called for an emphasis on urban infill development.

The optimism at the conference contrasted against a national report yesterday from the U.S. Commerce Department. It said that housing starts dropped about 13 percent across the nation last month, the biggest dip in nearly 11 years.

Gin said his sunny projections for San Diego County were no guarantee of prosperity. He cited several issues that could change the outlook.

A weakening of the national economy or a sharp rise in interest rates could have a big impact, he said. Also troublesome to a community with many long-distance commuters are high oil and gasoline prices. Gin said every 10-cent increase in the cost of a gallon of gasoline takes $7 million per month out of the San Diego economy. "If gas prices go up 50 cents a gallon, that is $35 million."

Turning to government, Gin said San Diego has yet to feel the full impact of the fiscal crisis at City Hall. He foresees the possibility of higher taxes, service cutbacks and delays in city infrastructure projects. San Diego's financial woes came to light in January when the city acknowledged errors and omissions in its 2002 financial statements.


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