Pros See No Doom, Gloom in Slowdown

RISMedia
A panel of economists and real estate professionals meeting at the University of San Diego said the county's housing market was returning to normal growth patterns following the boom that began in the late 1990s.

"I think the bloom is off the rose, but there is no doom and gloom," said Alan Nevin, chief economist for the California Building Industry Association.

The fundamentals of the housing economy remain sound, said Louis A. Galuppo, director of USD's Burnham-Moores Center for Real Estate. "We may see a decline in sales but not prices."

Despite "air leaking out of the tire," there are no major economic triggers, such as massive job losses, to cause the housing market to crash, said Joe Anfuso, chief financial officer of Shea Homes San Diego.

Outlook 2006, Burnham-Moores' sixth annual residential real estate conference, drew about 480 people to USD's Jenny Craig Pavilion. Those in attendance for the early-morning session heard experts dismiss the possibility of a bursting real estate price bubble.

Despite rising interest rates, a growing for-sale inventory and a slowing sales pace, the county's shortage of housing will prevent prices from dropping steeply, speakers asserted.
"It's Economics 101," said Leslie Appleton-Young, chief economist for the California Association of Realtors. "It's demand and supply."

In figures released outside the conference yesterday by DataQuick Information Systems, the county's median home price rose 6.4 percent in November, far less than the double-digit gains of April but strong by traditional standards.

Addressing the statewide economy, Appleton-Young forecast "a slight decline in home sales" for California in 2006. Many established homeowners have cashed out rising equity and now lack the funds to trade up to larger homes, she said.

"We are going to see people staying in their homes longer."

Another reason homeowners are staying put is Proposition 13, the landmark property-tax-cutting initiative. Passed in 1978, the measure limits tax increases on properties until they are sold. Many owners are reluctant to sell and give up their tax breaks, Appleton-Young said. If they buy a new home at a higher price, "they look at doubling and tripling their taxes."

Several speakers at the conference addressed the use of new lending products that had enabled middle-wage consumers to attain financing for high- priced homes. Many "creative" mortgage loans have low, introductory payments that adjust upward with prevailing interest rates after several years. In general, they shift risk from the lender to the borrower.

Anfuso said fears that such loans would trigger defaults were misplaced.
Many borrowers "are going up the wage scale" and will be able to handle rising payments, he said.

Michael Perry, chairman and chief executive of IndyMac Bankcorp, said he expected new federal guidelines to address such loans. Appleton-Young said some borrowers may find themselves overburdened by debt because of newer mortgage products.

"We may see a blip up in foreclosures and delinquencies," she said.

During a panel discussion called "Has the Bubble Burst? What's Next?" Alex Zikakis, president and founder of Capstone Advisors, said he didn't see a strong presence of speculators in the local residential real estate market.

Jill Morrow, president and chief operating officer of Coldwell Banker San Diego, said the local housing market was not driven by investors.

"We have a lot of diversity in our economy," she said.

In her forecast, Appleton-Young predicted a 2 percent statewide decrease in single-family home resales next year. She anticipates a 10 percent statewide increase in the cost of a median-priced resale home.

Citing an affordability crisis, Appleton-Young said trends showed that only about 15 percent of California households would be able to afford a median-priced home, compared with about 50 percent of households nationally.

In the long run, California's lack of affordability will lead more businesses and employees to consider moving out of state to areas where homeownership is more attainable, Perry said.

USD economist Alan Gin said the county's overall economy would outperform the state and the rest of the nation in 2006. Gin said he was concerned that most of the jobs being created here offered modest salaries, however. He also cited rising interest rates and high gasoline prices as concerns for local consumers. Even so, the housing market will cool but not collapse, he predicted.

Appleton-Young called California real estate a market in transition. "I think we're in for a soft landing," she said.