Economist Optimistic about local, California growth in '06

This story was in the print edition of the Manhattan Beach Reporter, volume 29, #51, January 26, 2006. Let's see how good Leslie Appleton-Young's predictions turn out:

Contrary to what some forecasters are predicting about the housing market this coming year, California Association of Realtors Chief Economist Leslie Appleton-Young sees continued, if more modest gains in home prices, and solid underlying economic fundamentals for 2006.

Appleton-Young issued her annual forecast at Shorewood Realtors' monthly meeting held January 11 at Trump National Golf Club in Rancho Palos Verdes.

Rather than experiencing a "bubble", Appleton-Young sees a soft landing for what has been until recently a torrid housing market in Southern California. She noted that regional employment remains strong, with nearly 81,000 jobs created last year; mortgage rates remain relatively low by historic standards; and demand still outpaces supply.

"The economy and employment are growing at good rates -- not great, but sustainable," she said. "Consumer prices, if you subtract oil and food costs, haven't increased very much.

"Overall, consumers are feeling better and spending was robust during the last cycle," she added. "A lot of that had to do with housing price appreciation, which created a lot of wealth. As this appreciation moderates, we may see less spending and definitely less refinancing activity."

The median price of a home last year stood at $548,000 statewide and $575,000 in Los Angeles County. Locally, the median stood at $982,500 in the beach cities (up 23.6% from the previous year) and $1.35 million in Palos Verdes Estates (up 37.8%).

For 2006, Appleton-Young forecast what she called "sustainable, moderate growth" in housing prices, with the statewide median price expected to rise to $573,000. She also said employment and real personal incomes were expected to grow this year, by 1% and 3.6% respectively. Mortgage rates may rise slightly due to expected interest rate increases by the Federal Reserve, but will still remain low by historical standards, with fixed-rate 30-year loans available for around 6.5%.

She also forecast that home prices in Southern California coastal areas would increase from 6% to 12% over the next 12 months.

Appleton-Young said that, for many first-time home buyers, California would remain a tough market to break into, with the "affordability index" - the number of households that earn enough to purchase a median-priced home - standing at 15% statewide and only 12% in Los Angeles County.