Expert: Housing market to cool off

Cal State economist says there’s no bubble to burst, but sales will slow. A California Assn. of Realtors report is more optimistic. If there’s one word homeowners and real estate agents have learned to fear in recent years, it’s “bubble.”

But as Cal State Fullerton economist Anil Puri pointed out Tuesday, bubble is not a scientific term. While presenting economic forecast data, Puri said he expects Orange County’s housing market to cool off next year but does not foresee any popping.

In 2006, home prices could undergo “a moderate decline,” Puri said. “I wouldn’t say bursting of the bubble, because there is no bubble.”

Recent data shows appreciation has slowed in the county. Citing data from the California Assn. of Realtors, the forecast shows that Orange County home prices climbed 9% from July 2004 to July 2005. By comparison, prices surged 30.7% between July 2003 and July 2004.

Other figures showed homes in most Newport-Mesa neighborhoods gained value between July 2004 and July 2005. For example, La Jolla-based DataQuick Information Systems reported median home values in southern Costa Mesa rose 28% to $729,000. The only local area that posted a dip in that period was the ZIP Code that includes Big Canyon and neighborhoods around the Upper Newport Bay, where median prices dropped 8.4% to $1,225,000.

For September, DataQuick reported Monday that median home prices in southern Costa Mesa continued to climb, reaching $786,000. Home prices near the bay rose from July levels to $1,487,500. That number marked a 36.8% increase over September 2004 values.

The California Assn. of Realtors and DataQuick use different methods to report prices. According to the California Assn. of Realtors, it collects information from the multiple-listing service used by real estate agents. DataQuick uses numbers from county records.

To Puri, a high incidence of speculative home buying is more indicative of a bubble than recent appreciation. He said he does not see evidence of a dangerous number of speculative purchases.

The 2006 Economic Forecast Report was produced by the Institute for Economic and Environmental Studies at Cal State Fullerton. Home prices were only one component of the predictions. Puri discussed the report before a crowd of Orange County business professionals Tuesday at the Hyatt Regency Irvine.

Throughout Orange County, the forecast predicts that at the close of 2006, median home prices will be 2% to 4% lower than prices at the end of 2005. After the presentation, Puri said he expects mortgage rates to be the key variable for home prices. He anticipates mortgage rates to go up by about 1% next year.

“This is to be expected, because as rates go up, payments become larger,” Puri said.

The California Assn. of Realtors forecast released late September was more optimistic. That report predicted median home prices along the Southern California coastline would continue to rise next year by 6% to 12%.

California Assn. of Realtors deputy chief economist Robert Kleinhenz, who was in the audience Tuesday, said that while he expects the rate of home-price appreciation in the county to slow down, he anticipates a flurry of home sales next year.

“Orange County will put up a new record in terms of home sales,” he said.

* ANDREW EDWARDS covers business and the environment. He can be reached at (714) 966-4624 or by e-mail at andrew.edwards@latimes.com.