Friday, February 11, 2005

Red hot real estate market may cool off this year

By John Loesing

While home prices have hit incredibly high levels in many areas of Ventura County and in adjacent communities of Los Angeles County, the residential real estate market shows little sign of tapering off this year due to the area’s continued strong economy, according to an industry report released last week.

Office and industrial real estate remain in good health, too, as vacancy rates continue to fall.

Powered by new momentum from job growth and business expansion, real estate markets in general show few signs of deflating. But according to the 2005 Ventura County Real Estate and Economic Outlook, this will be a year in which escalating home values finally begin to slow.

The price of a median home jumped almost 33 percent in Westlake Village last year to $954,878, the third-largest increase countywide next to a 42 percent spike in Ojai and a 34 percent increase in Santa Paula.

The average Calabasas home increased almost 31 percent to $1.26 million, followed by a Simi Valley increase of almost 27 percent, Thousand Oaks at 23 percent, Moorpark at 21 percent and Agoura Hills at 19 percent.

Condo sales were right behind.

"The great and not-yet-late real estate boom of the 21st Century is not over yet," said Mark Schniepp, director of the Santa Barbara-based California Economic Forecast, which put the report together.

Nationwide, the home price increase was 13 percent. But during the past 40 years, the average annual increase remains only 0.7 percent, one expert pointed out.

So is there a real estate bubble?

"Don’t expect any popping sounds next year," Schniepp said, but he warned that a "plateau" effect might be taking place. In fact, there was practically no upward movement in home prices for the entire second half of the year, the report said.

The countywide gain of 29 percent in 2004 is projected to slow to 9 percent this year and 7 percent in 2006.

The key to sustainability, Schniepp said, is demand.

New job opportunities in the Conejo and Simi valleys will keep demographics strong and spending high. Last year, 5,500 jobs were added in Ventura County, the highest total since 2000.

In addition, mortgage rates remain comfortable. But according to Schniepp, salaries aren’t keeping pace with lifestyle and homeowners are stretching themselves too thin because they perceive themselves to have higher net worth due to the appreciation in their property.

It’s a false sense of security, and as of last November only 17 percent of county households could afford to buy the median-priced home of $600,000.

"The divergence between (personal) income and housing values has become so large it’s scary," Schniepp told a gathering of real estate and banking experts in Westlake Village where the report was discussed.

Chris Thornberg, senior economist for the UCLA Anderson Forecast, said consumer spending has been the mainstay of the nation’s economy, but he noted that "people are spending beyond their means" and that at some point in the future Americans are going to have to "pay the piper."

In addition, more homes locally are being bought by speculators, or to put it another way, fewer homes are being owner-occupied. The above factors all contribute to a real estate bubble.

"Folks, we’re in a real estate bubble and at some point this is going to come down crashing down on us," Thornberg said. "We’re building ourselves up for another big recession."

For now, the report said, "there is enough demand growth, including speculation, to keep the market buoyant. . . . We hope for a soft landing."

Rental rates already have showed signs of slowing. In Moorpark, rents have been flat since July 2004 as the vacancy rate hovers around 4.5 percent.

More new homes being built

While home prices remain high, the number of sales in Ventura County continued its four-year decline with a 10 percent drop in 2004, due mainly to the lack of new housing production.

In fact, inventory constraints pushed the sales of new homes to a 10-year low in 2004. But 2005 and 2006 promise to bring relief. Simi Valley––with developments that include The Canyons––and Moorpark––with its North Park Village development––have a combined 7,200 residential units either pending or approved. Thousand Oaks has 1,692 units.

Schniepp said 2005 is setting up to be "the biggest year in a decade" for new home construction.

The big-ticket items are in Calabasas and Agoura Hills, where new single-family homes are averaging over $1 million. This year, residents will continue to occupy the new multimillion-dollar homes at The Oaks development near Calabasas Hills.

Plans show that most of the new housing will be built in the western part of Ventura County rather than in the East County and western Los Angeles County areas.

Overall, "the local Ventura County housing market will remain firm and prices will stay high," according to the economic forecast.

The number of new multifamily units is expected to grow as well. The biggest project in Thousand Oaks is Continuing Life Communities, a 370-unit retirement home development.

Commercial outlook strong

Schniepp said 2005 will be a "breakout year" for Conejo Valley employment, especially in the tech sector. As a result, the demand for office and industrial space will increase.

According to broker CB Richard Ellis, 2004 brought the Conejo Valley its fifth consecutive year of positive net absorption, the rate at which vacant commercial real estate becomes occupied. Office vacancies hover at 15 percent, but that’s still below the national average.

Countywide, the industrial vacancy rate fell to less than 9 percent, with markets especially tight in Simi Valley and Thousand Oaks. Ventura County’s inventory of industrial real estate hit a record 60 million square feet last year.

Retail space also found higher demand as vacancies in that sector fell to less than 4 percent.

The area’s biggest projects are the Simi Valley Town Center mall, the Zelman Retail Partners commercial center in Moorpark, and The Oaks mall expansion and the Rick Caruso Lakes project in Thousand Oaks.