One of the most bearish analysts tracking California's real estate market issued perhaps his gloomiest forecast yet on housing, a prediction that rekindled an incendiary debate about his outlook.
California's housing market has veered into a period of stagnation that will last years and be marked by flat home prices and slumping sales, according to a report released today by the UCLA Anderson Forecast.
Home prices in the Golden State will remain "stagnant" through the end of the decade, said Christopher Thornberg, senior economist with the Anderson Forecast, which included the assessment of the once white-hot housing market in the state as part of its quarterly forecast on California's economy.
Local Realtors were quick to fire back. "The Anderson people have been predicting various versions of this for years," said Ron Atkins, a Pleasanton-based realty agent with Re/Max Accord. "Eventually they will be right. But it will only be a coincidence."
UCLA economists believe average home prices in California will rise zero to 1 percent a year at least through 2010, Thornberg said in an interview.
"Everything is saying to us that this is the beginning of the slowdown in housing," Thornberg said. "The leading indicators of a slump in housing is a slowdown in sales activity, increasing inventory levels, and a leveling off of price appreciation. All those are happening."
The Anderson prognosticators believe California-wide home sales will fall 18 percent in 2006 and another 10 percent in 2007. Sales will fall further in 2008, Thornberg said. The forecasters also predicted a 6 percent increase in the average California home price and no change in the average price in 2007.
Realty executives contacted for this story disputed the Anderson crystal ball. Anderson economists have clashed with real estate officials regarding the forecast center's skepticism about the housing market.
In the Tri-Valley, homes are on the market for about three months, based on the current inventory of houses up for sale and the number of sales each month.
"That does not sound like a market where the bottom has fallen out," Atkins said.
Atkins calls that a "normal" cycle that is an expected cooling from the torrid market of recent years.
"What is important is jobs and the movement of people in and out of the area," Atkins said. "As long as the East Bay has a strong job market, and as long as interest rates don't increase at a crazy rate, we still do not have enough homes for people in the Bay Area."
That pent-up demand for homes will serve to prop up prices in the region, said Larry Spiteri, president of the Contra Costa Association of Realtors, and a realty broker with Pleasanton-based Intero Real Estate Services. What's more, lenders have taken steps to make loans more attractive to prospective home buyers.
"Lenders are seeing a change in the marketplace and they are coming out with new products to help buyers deal with rising interest rates and high home prices," Spiteri said.
Yet the Anderson economists believe a tough ending looms for the housing market.
"The 'soft landing' scenario being predicted by the industry is clearly overly optimistic," Thornberg wrote in his forecast.
Dangers also lurk for the entire California economy as housing sales cool and price gains stagger.
Case in point: Nationwide, brokerage commission fees generated more than $100 billion in 2005. Thornberg figures California has a share of at least 10 percent, or $10 billion. A significant decline in that source of revenue would bruise the statewide economy.
Still, Thornberg believes the overall California economy is strong enough to weather turbulence in real estate.
"Tourism, manufacturing output and professional services are growing quite rapidly, and they will help offset the decline in housing," Thornberg said. "And the high-tech sector is coming back in both manufacturing and services."