California Home Prices May Be Moderating

REALTOR® Magazine Online
If the CALIFORNIA ASSOCIATION OF REALTORS®' 2006 forecast proves accurate, home prices in the state will rise at less than half the rate they've gone up during each of the past four years.

And that would be good news for homebuyers struggling to attain ownership there.

Only 16 percent of households could afford the median-priced home, which was $540,900 in July, according to CAR. A year ago, the median price was $461,740. In nearly a half dozen regions, only one in 10 households—or fewer—can afford the median-priced home, CAR says.

But based on the forecast, “not all areas of the state will continue to experience the unprecedented double-digit median price increases of the past five years,” says CAR Vice President and Chief Economist Leslie Appleton-Young. “Some high-cost areas, especially those in the more costly coastal regions, face a potential leveling off of median price gains compared with the 10 percent gain we expect for the state as a whole." That predicted 10 percent gain caps out at $575,500.

The Golden State's perpetual supply-demand imbalance pushed home prices up 25.16 percent in the year ending in the second quarter of 2005, and 109.7 percent in the last five years, according to the Office of Federal Housing Enterprise Oversight.

In California, each year ends with an approximate 50,000 shortfall in housing units, based on the number of new households (250,000) and the number of new housing units constructed (an estimated 200,000 this year), CAR says. CAR economists say the supply-demand imbalance will continue to drive the market, but at a much moderated pace next year.

The association's annual forecast also calls for sales to fall by 2 percent. That's a switch, too. In July, sales were up 1.3 percent compared with July 2004.

California’s high-cost areas, including the Los Angeles, San Diego, and San Francisco Bay Area markets, could see even higher rates of constrained sales, and home price appreciation less than 10 percent, says Appleton-Young.