My Crystal Ball is Broken

The California Association of Realtors quarterly meetings are taking place in Anaheim this week, and Leslie Appleton-Young, chief economist for the group, updated her forecast for the next year. She predicted that the California housing market will continue to slow next year, with house prices falling 4 percent, and 9 percent fewer houses changing hands, and that the median price of detached single-family houses that sell statewide will drop in 2008 to $553,000 from a projected median price in 2007 of $576,000.
If California's median house price does fall next year compared with 2007, it would be the first such decline since 1996, according to CAR's records. This year, despite rising mortgage defaults, deteriorating credit market conditions and lower values for most California homes, it's likely that the median price of houses sold in the state will be 3.5 percent higher than in 2006, Appleton-Young said - but it's all because of the changing mix of homes that are selling. The whole "pie" of home sales volume has shrunk this year by more than 20 percent compared with sales in 2006, she said. But "the part of the pie that's moderate and low-end housing has shrunk even more." With so many sales of lower-price homes out of the picture, the median price has been bumped up artificially.
The Realtors' forecast predicts sales of existing houses will decline all over the state, falling to a total of 334,500 sales of resale single-family houses. This year's total is projected to be 367,500. The peak year was 2005, when 625,000 houses changed hands.
In "entry-level" neighborhoods in the Central Valley, for example, sales will drop because of oversupply of newly built homes that compete with the resales. In more expensive places like the Bay Area, they will fall because of "affordability constraints," which means a combination of high prices and tighter lending criteria to obtain mortgages.
She did not make distinct predictions for different regions of the state, but said earlier that she expects the Bay Area housing market in general to hold up better than the state as a whole. Compared with the Central Valley or Inland Empire in Southern California, for example, the Bay Area has little new-home development, and therefore less stagnant oversupply of homes for sale. "That's one component that keeps this market outperforming the state as a whole," she said. This year's stock market gains also have helped fuel home sales in the region, she said.