The California housing market is cooling and will not experience a meltdown, according to an analysis prepared by a Union Bank of California economist.

The forecast, “Housing Market: A Slowdown, Not a Meltdown,” which is based on data from the California Association of Realtors trade group and the Office of Federal Housing Enterprise Oversight, concludes that “the housing market is headed for a soft landing.”

Keitaro Matsuda, senior economist for Union Bank of California, states in the analysis, “While the California housing market retains much momentum, especially in inland communities, there are signs that the boom has already peaked.”

The unsold inventory of single-family detached homes in the state grew from November 2004 to November 2005, for example, and price appreciation has slowed.

While appreciation rates in some cases have slowed in 2005 compared to 2004 for many communities in California, Matsuda noted that “some California markets have experienced extraordinary price appreciations over the past year,” with appreciation rates ranging from 45.9 percent (in Atwater) to 79.5 percent (in Delano).

Meanwhile, “the markets that were touched by the boom earlier, such as the San Francisco Bay Area, Orange County, and San Diego, have slowed to annual increases of less than 10 percent. This changing of the guard in home price appreciation is narrowing the affordability gap between the coast and inland areas,” the report notes.

Nationally, price appreciation has moderated in other states that also experienced a major housing boom, such as Nevada and Hawaii.

“Conversely, home prices gained much upward momentum in heretofore subdued markets, including Arizona, Oregon, Washington, Idaho, and Utah in recent quarters. If anything, the housing booms both across the United States and in California are not ending, but spreading more broadly,” the report states.

Job growth has been “fairly strong” in California, the report also notes, with non-farm payroll employment increasing 1.3 percent in the state.

The construction industry added 66,000 jobs over the past year, accounting for more than one-third of total jobs gained during the period, according to the analysis. Overall employment growth was strongest in the Central Valley, while decelerating in the Inland Empire and Orange County.

Matsuda states in the analysis that the state of the California housing market “bears little resemblance to the ‘bubble bursting’ scenario as described by many industry analysts. The California housing market has proved to be more stable and resilient than previously thought. The home sales volume will likely decrease further in 2006, but prices will remain firm.

“Actually, I wouldn’t be surprised if home prices continue to rise moderately in many local markets.”

Matsuda also said the state’s housing market is more like a “balloon” than “a fragile bubble.”

“This balloon is not quite as full and buoyant as before, but is also less likely to burst from too much internal pressure. (I am talking about a traditional rubber variety here, not the near indestructible metallic kind.) So we’re likely to witness a continued slowdown of the residential real estate market, but not a meltdown. Instead of a loud pop that so many analysts have warned us about, what we will hear in 2006 is the barely audible hiss of a deflating balloon,” he stated.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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