Forecasters say prices likely to rise about 15% over 4 years in county
FRIDAY, MAY 21, 2010 AT 9:22 P.M.
San Diego County home prices, which began to recover last year, will continue rising but at a slowing pace as government stimulus programs expire, Beacon Economics forecasters predicted Friday.
In a wide-ranging review of the local economy at the San Diego Hilton Torrey Pines, the San Rafael consulting firm’s economists said single-family resale home prices will trend upward, from the first quarter’s median of $382,788 to $439,000 over the next four years — a nearly 15 percent rise.
“Home prices in San Diego are great news here,” said Brad Kemp, Beacon’s director of regional research.
But the recent increases occurred with the help of federal stimulus dollars, not because of any underlying economic fundamentals, such as significant job or population growth that would spark long-term demand, the economists said.
With foreclosures expected to increase, home-buying incentives expiring and nearly a third of all homes worth less than their mortgage balance, Kemp said sales and price growth will slow down. The $439,000 median price forecast for 2014 would still be 23 percent below the 2006 peak of $571,580.
“I don’t think it will grow at an exponential pace anytime soon,” he said.
The forecast falls in line with other economists and real estate industry analysts, who have predicted a leveling off of prices or a drop of as much as 5 percent for the rest of the year, after federal homebuyer tax credits and low interest rates end. An expected increase in foreclosure properties also is expected to keep a damper on prices.
In an interview, Kemp said that as prices rise, even at a slowing pace, San Diego will again become less affordable to local buyers. They will likely turn northward to buy in southern Riverside County and commute to work in San Diego, just as they did during the past decade’s boom.
Kemp said new-home builders are ramping up construction of both homes and apartments to meet a perceived pickup in demand.
“But when demand starts to drop and price gains begin to wane, builder enthusiasm will likely fade,” Kemp wrote in an accompanying report. “The number of permits issued will return to a sustainable level in 2011 and stay there through the end of the Beacon Economics forecast (2014).”
Beacon predicted that single-family home sales will dip from today’s seasonally adjusted quarterly rate of 7,119, to 6,290 by the end of next year, and then rise to 7,400 by 2014. That’s better than last year’s low of 5,814 sales but less than the 10,000 rate in 2003.
In nonresidential real estate, Beacon predicted “turmoil” through next year, resulting in commercial property prices down by as much as 40 percent.
Office vacancies, currently about 19.3 percent, will fall only to 13 percent over the next four years as employment growth remains sluggish. Industry norms consider a healthy office vacancy rate to be less than 10 percent.
“Looking ahead to the rest of 2010 through 2012, the health of the office market will be largely tied to the extent of increased government spending on biotech and technology,” said Patrick S. Duffy of MetroIntelligence Real Estate Advisors, who wrote the chapter on commercial real estate in the Beacon report.
High vacancies will mean bargains for investors in some office buildings, he said, but values will still end up 36 percent below their peak of 2006.
Retail sales and leases have improved here more than in other parts of the state, but consumer demand is expected to ebb as tax cuts and rebates disappear. Beacon’s Christopher Thornberg said spending lately rose at a 3 percent annual rate though incomes were up only 2 percent.
“It’s not good for how the economy will play out,” he said.
Looking at the economy as a whole, Thornberg said the United States is “absolutely” out of the recession.
“I see a good year ahead and a big slowdown in 2011-12,” he said. Now, “a good dose of patience” is what’s needed.
Roger Showley: (619) 293-1286; roger.showley@uniontrib.com
