Tag Archives: real estate costs

How much longer can southern CA home prices keep going up?

 

Home for sale in Dana Point. Click photo for details.

Source: OC Register

For 62 straight months, Southern California home prices have gone in one direction. Up. Five years ago, you could snatch up a median-priced condo in Orange and Los Angeles counties for about $280,000, 76 percent less than today’s prices. A median-priced house cost $323,000 in L.A. County five years ago and $495,000 in O.C., about $260,000 less than today’s prices in both counties.

What should a buyer do now? Will prices keep rising? Or are prices close to the top?

The OC Register asked a half-dozen economists and industry analysts what the future holds for home prices in the region. Among their answers:

  • Southern California home prices aren’t about to drop. In fact, they believe prices will keep rising for two more years, at least, and possibly longer.
  • The market isn’t in a bubble — yet — although bubble talk is starting to “raise its ugly head” at cocktail parties, one economist said. Some analysts are saying Southern California home prices are showing signs of being overvalued.
  • If you’re thinking about buying a home, now just might be the time to act — provided you don’t overextend yourself and you plan to live there awhile.

Here are five key questions about where Southern California home prices are heading in the future.

Q: Are we at the peak?

A: Not one of the economists interviewed thinks we are, at least not for entry-level homes. Luxury homes, priced at $2 million and up, may have reached a price peak and are facing an oversupply of listings, analysts said.

Nominal home prices have surpassed pre-recession highs in Orange and Los Angeles counties. Riverside and San Bernardino counties are about 18 percent below their price peaks. But none of those counties has reached pre-recession peaks in inflation-adjusted dollars.

If home prices were to keep rising at the current appreciation rate, and inflation were to continue at the current rate, Orange County’s median home price won’t get back to the pre-recession peak after inflation for about two to three years.

Another fact to consider: During the last market run up, Southern California home prices increased year over year for 126 consecutive months, or 10½ years. That’s twice as long as the current streak in home price gains.

Lastly, analysts say home prices aren’t rising that much. Price increases averaged 6.3 percent in Southern California in the past year, ranging from a low of 5.4 percent In Orange County to a high of 7.9 percent in San Bernardino County.

Q: How much longer will home prices go up?

A: Two years at least, most economists interviewed said. Possibly longer.

Projections by the California Association of Realtors show a gradual decrease in home price appreciation over the next few years, said Oscar Wei, a senior economist for the group. For example, CAR projects prices will go up 5 percent statewide in 2017, 4 percent in 2018, and 2.5 percent in 2019.

Assuming the Gross Domestic Product continues to grow at 2.5 percent and mortgage interest rates stay below 4.5 percent, Southern California home prices could be going up at 6 percent a year for the next six to seven years. At 6 percent a year, the median home price could reach almost $700,000 in Southern California by 2023, $500,000 in Riverside County, $800,000 in Los Angeles County and nearly $1 million in Orange County.

Q: Are we in a bubble now?

A: No.  Los Angeles and Orange counties had an 11½-month supply of homes for sale in the spring of 2007 compared with under four months available this year. Riverside County had an 8½-month supply of listings for sale, vs. just under four months today; San Bernardino County had a 16½-month supply, vs. four months today.

In California as a whole, 43 percent of borrowers had second mortgages in 2006, vs. 4.8 percent last year.  California’s median down payment was 11.8 percent of the purchase price in 2006, vs. 18.6 percent last year. To sum up, we don’t have as many people over-leveraging their homes.

Q: When is the next recession?

A: Not for at least two years, economists said. “Over the next two years, the recession probability is very low,” said UCLA economics professor William Yu, a member of the team producing the UCLA Anderson Forecast. “But beyond two years, that is very difficult to say.”

A major global calamity — like a new Korean War, a messy breakup of the European Union or a surge in oil prices — could trigger a recession, but forecasting exactly when is an extremely murky business, said Joachim Fels, a Pimco managing director and global economic adviser.

Q: Is it too late to buy a home?

A: Industry analysts have advised renters for the past four years to get into the housing market while interest rates and prices still are low. While it’s definitely more expensive to buy a home today than it was a few years back, the cost of buying will be even greater down the road.

If you wait, home prices probably will go up about 8 percent or so in the next couple of years. Plus you’re probably going to see some increase in mortgage rates. Analysts predict mortgage rates will go up half a percentage point this year and half a percentage point next year.

Source: OC Register