Bank Economist Says Orange County, Calif’s Housing-Price Boom May Soon Come to a Screeching Halt

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Home values could languish as long as 10 years, he adds
By Mary Ann Milbourn

The Orange County Register, Calif.

RISMEDIA, June 30 ? (KRT) ? Orange County, Calif.’s, housing-price boom is about to come to a screeching halt and home values could languish as long as 10 years, Wells Fargo’s chief economist predicted Wednesday.

“We’re talking about a decade at least — if not more — of (housing price) stagnation,” said Scott Anderson, after a presentation Wednesday on the state of the economy to about 200 clients at the Westin South Coast Plaza.

But he’s not talking housing bust.

“There will be a slow fizzle (in prices), not a pop,” Anderson said.

Orange County’s housing market, he said, is basically going to pay the price of its own success after home appreciation outstripped local median family incomes for eight straight years.

For instance, in 1996, just as the housing market was beginning to move out of the mid-1990s recession, Orange County’s median single-family home price increased 2 percent, but median family incomes were up 3 percent.

Last year, the median home price soared 18 percent, while incomes rose just 3 percent.

May’s $590,000 median home price was nearly eight times Orange County’s median family income. The California Association of Realtors estimates that only 11 percent of local residents can now afford a single-family home here.

There’s a little oomph left in the market, he said. Anderson predicts that 30-year, fixed mortgage rates will remain around 5.8 percent over the next six months, which could help boost home prices about 5 percent this year.

Next year, homeowners might see a 1 percent to 2 percent increase in appreciation, then Anderson expects prices will level off indefinitely until incomes can catch up.

Even though much of Orange County’s economic recovery can be attributed to the housing boom, Anderson doesn’t think stagnant housing prices spell recession, because strength will remain in other sectors like technology and tourism.

He expects the county’s job base will continue to grow — by 1.7 percent this year, accelerating to 2.6 percent in 2006 — which will contribute to income growth.

“Orange County’s (outlook) remains encouraging,” he said.

Copyright ? 2005, The Orange County Register, Calif.

Distributed by Knight Ridder/Tribune Business News.

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