The Housing Chronicles Blog: CAR predicts home prices will decline by 6% in 2009, sales up by 12%

Thursday, October 16, 2008

CAR predicts home prices will decline by 6% in 2009, sales up by 12%

I've not been a big fan of the California Association of Realtors' (CAR) ability to forecast market trends over the past few years, mostly because they've been so off the mark. When the market changed on a dime from boom to bust -- something I'd predicted in early 2006 -- their economist, Leslie Appleton-Young, basically begged for more time to think of some new terms to describe what was happening. Now we know why (from a story in the Riverside Press-Enterprise, which covers part of the Inland Empire):

Association President William E. Brown said a misunderstanding of the depth of the nation's credit crisis led the association to mistakenly predict a year ago that the median price of a resale home in California would drop only 4 percent in 2008. In its latest forecast, the association assumes that the current economic recession will last through the second quarter of 2009 and then the economy will begin a "turnaround."

So what kind of turnaround? Read on:

The association predicts that in 2009 the median home price in California will decline 6 percent to $358,000 from a projected median of $381,000 this year. Sales of existing single-family homes in 2009 are projected to increase 12.5 percent to 445,000 from 395,600 in 2008. That would build on a 12-percent surge in home sales this year, which has been fueled by steeply discounted foreclosed properties.

So how realistic is this forecast? From what I've been reading, it's pretty optimistic in terms of pricing increases, although the sales projection seems reasonable due to lower prices:

However, Patrick Duffy, principal for MetroIntelligence Real Estate Advisors in Los Angeles, said the association's prediction of a 6 percent further decline in the state's home prices next year seems "optimistic" and what he would expect from an organization whose members have an interest in promoting home buying. Duffy said other economic forecasts predict California home prices to fall next year by 10 percent to 15 percent.

This opinion was based on what I've read and heard from economists I respect, some of whom are also quoted in the story:

Michael Carney, director of the Real Estate Research Council of Southern California, said he expects price declines next year in Riverside and San Bernardino counties will be greater than the 10 percent he is predicting for the state as a whole because of this region's large glut of bank-owned houses and job losses.

And then of course there's our own West Coast version of "Dr. Doom" Roubini named Chris Thornberg, and here's what he had to say about the forecast in the San Francisco Chronicle:

Sales will likely climb by about the amount the group predicts, thanks to the bargains presented by increasing foreclosure sales, but its price forecast is too rosy, said Chris Thornberg, founder of Los Angeles research firm Beacon Economics.

"The decline of 6 percent sounds like something of a pipe dream," he said. "The shear amount of momentum there is ... just phenomenal, and I find it hard to believe it's going to basically bottom out that quickly."

Thornberg believes prices will fall by at least 10 percent, and possibly as much as 15 percent.

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