California Home Values Will Rise, Industry Group Says

Values should boost 5% to 8% this year as sales decelerate slightly.
RISMedia
The value of the typical California home will rise 5 percent to 8 percent in 2006 as sales decelerate slightly, the California Building Industry Association predicted Wednesday in a generally upbeat forecast.

BIA economist Alan Nevin said lower-cost homes and lower-cost regions, such as the Central Valley, will see the highest price gains, while high-end homes and higher-priced regions will see smaller, if any, gains - and possibly declines in home values.

In recent years, home prices here and across much of the Golden State have shot up 20 percent to 30 percent annually.

Other experts forecast lower appreciation in the Sacramento market. Existing homes will gain roughly 5 percent, according to Keitaro Matsuda, senior economist with Union Bank of California in San Francisco, while housing analyst Greg Paquin of The Gregory Group in Folsom sees new homes rising between 1 percent and 5 percent.

Like the BIA, Matsuda expects prices of many high-end homes to remain flat or dip a bit this year, with most appreciation concentrated in the most affordable homes.

Nevin anticipates statewide new home sales falling to between 185,000 to 205,000 this year from about 212,000 last year. He said many builders have reduced their pace of construction in recent months in response to the market's slowdown this fall.

The main focus of builders now, he said, is on selling homes that are built, or nearly built, but have no buyer - something local builders have seen more of lately as buyer cancellations soared. It's prompted builders to offer incentives worth thousands of dollars to attract new buyers.

By spring, Nevin contends, builders won't have much of this excess inventory left to sell and buyers will sense it. At that point, he says, price pressures will resume.

Nevin said that, given the tone of news media reports on housing, "people are holding back because they think prices are going to drop and they're backing out of deals. ... There will be some concessions given, there's no question, but once those few homes are sold in the inventory, the concessions go away."

Matsuda predicted rates for a traditional 30-year mortgage will rise about half a percentage point this year and that the Federal Reserve will raise short-term rates another half of a percentage point. That would translate into higher borrowing costs, lower housing affordability and a decline in sales and appreciation.

However, Matsuda asserted, with continued employment growth here and statewide this year - which most economists expect -- housing should avoid a meltdown.
"Instead of a loud pop that so many analysts have warned us about," Matsuda wrote in his forecast report, "what we will hear in 2006 is the barely audible hiss of a deflating balloon."