Chapman Predicts Another Double Digit Home Price Drop
Posted in Market Trends and Projections | By Blair Newman and Dave Emerson | Tags: Business, Chapman University Economic predictions, housing market, Inland Empire Housing Price Projections, Los Angeles County Housing Price Predictions, Orange County Housing Price Projections, Southern California Real Estate
Just as the National Association of Realtors’ forecasts tend to be overly optimistic (see this morning’s post), Chapman University’s tend to be quite pessimistic. I think they’re still mad that Gary Watts made them look foolish several years in a row, or it could just be something inherent in their system.
Anyway, as part of their coming June “comprehensive forecast of key economic variables,” Chapman’s Economic Research Center today released their projection of Los Angeles County, Orange County, and Inland Empire housing prices based only on one variable, affordability.
To reach the historical average affordability rate, Chapman says L.A.County median home prices need to fall an additional 23.3% and Orange County by another 13.7%. The Inland Empire, which has had the more severe overbuilding and foreclosure rates, need “only” fall another 8.2% to reach Chapman’s magical median.
Now for the bad news:
“It is likely that home prices will decline even more . . . since corrections usually drop the affordability index below the historical mean.”
Their math assumes modest income increases and flat interest rates. Declining rates could significantly decrease the amount of “correction” needed, while more modest pay increases could offset at least some of that.
I think historical trends in L.A. and Orange Counties are skewed by many years of affordable land. Today’s situation of being practically built out on the coastal plain should result in higher affordability rates, in our opinion. That doesn’t totally invalidate Chapman’s conclusions–we’d just pick more modest numbers. We’re also hopeful that continue declines in mortgage rates will increase affordability.
It seems to us that both Chapman University and Gary Watts are like broken clocks. Gary’s stuck at sunrise: He always thinks prices will keep going up. Chapman’s stuck at midnight: The worst is yet to come. They’re both right once in each economic cycle, like a broken 24-hour clock that’s right once a day.
Still it’s one more thing to consider. We think a 5% – 10% additional price drop will hopefully do it for the coastal plain at least. (See “A Change in Our Projections“).
Like we keep saying, nobody knows for sure (See “How Low Will Prices Go?”).
For Chapman’s full report, including some nifty charts, in PDF form, click here.
And click here for “a little perspective” on our real estate woes, here for “a little more perspective,” here to find out “what to do when nobody knows what’s next,” or here to find out “how to sell your So Cal home for top dollar in 30 days.”
As for me, I think it’s time to get outside in this beautiful weather & go for a jog.
Tags: Business, Chapman University Economic predictions, housing market, Inland Empire Housing Price Projections, Los Angeles County Housing Price Predictions, Orange County Housing Price Projections, Southern California Real Estate
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