State home prices expected to drop

A real estate trade group says next year will see the first decline in more than a decade. By Annette Haddad, Los Angeles Times Staff Writer 9:20 AM PDT, October 10, 2007 Home values are expected to drop next year for the first time in more than a decade and sales will remain slow as California's housing market continues to languish, the state's top real estate trade group predicted today. The median price of an existing California home is expected to decline 4% to $553,000 in 2008, compared with a projected median of $576,000 this year, according to the California Assn. of Realtors forecast. Sales are likely to fall 9% next year, which would be the slowest rate of decline in two years. The forecast by the state Realtors comes as their national counterparts projected a steeper decline this year in existing homes sales nationwide than previously anticipated. The National Assn. of Realtors today revised, for the eighth consecutive time, its outlook of U.S. existing home sales, which are now expected to fall 10.8% compared to 2006. It would be the worst year for U.S. home sales since 2002. U.S. home prices are forecast to drop 1.3% to a median of $210,200 this year. The median is the point where half the homes sell for more and half for less. In California, lower-priced markets will remain especially weak next year thanks to the sub-prime mortgage meltdown, tighter loan-writing standards and discounting by new-home builders hoping to clear their inventory. "Geographically, more affordable regions such as the Central Valley and Inland Empire will experience greater softness in the resale market because of the large number of new homes coming onto the market in recent years," said Leslie Appleton-Young, the state Realtors group chief economist. But she warned that even higher-priced markets, including Los Angeles, Orange County and the Bay Area, where prices continue to appreciate and sales have been more robust, will start to show signs of stress, though to a lesser extent. "Higher-priced regions of the state will react more to affordability constraints," she said. Appleton-Young declined to offer any predictions for the state's housing market beyond 2008. The last time existing California home prices fell was in 1996, when the median price declined 0.5%, according to the Realtors' calculations. In 2003, 2004, and 2005, home prices rose more than 16% year over year. In 2006, home prices started to moderate, rising 6.2%. For 2007, the Realtors forecast a 3.5% price increase to a record $576,000, even as sales volume drops 23%. The biggest factor facing the state's housing market is the rise in the supply of new and existing homes for sale. In August, the Realtors group found that there were so many existing, single-family homes for sale in California that it would take 11.8 months to deplete the supply if no additional houses came on the market. The ample inventory has prompted the normally optimistic Realtors group to discourage homeowners from selling unless they absolutely must. "Now is not the time for homeowners to 'test the waters.' Only serious sellers should put their homes on the market in what will continue to be a challenging sales environment," said association President Colleen Badagliacco. The California Assn. of Realtors calculates its median price based on a sampling of data about existing-home sales supplied by real estate brokers around the state. The data don't include sales of newly built homes. annette.haddad@latimes.com Technorati Tags: California, Price Drop,