What's Ahead for Housing

Copy for Real Estate Guide Column for 6-30-06 (464 words)

REAL ESTATE PATTERNS
By Ken DuVall

What’s Ahead for Housing

My crystal ball is cloudy, but I do see a cleansing under way. The excesses are being wrung out of some high-flying markets. In Chico, I see values quietly continuing to rebuild. By next year, look for stability. Don’t panic, no matter what you hear from the “sky is falling” crowd. Forget the “61% overpriced” study. There are many reports to the contrary. There’s no free fall in sight, even as we hear about price-slashing and incentives in some once-hot areas, and purchase cancellations for new homes. Those spec buyers are bailing because they can’t make a killing in the next half hour anymore. Houses are for living in once again. One million people became homeowners last year. Immigration alone, running at 1.2 million annually, will drive new households to 14.6 million over the next decade. That’s a ton of demand. Strong household growth combined with record incomes and wealth, will continue to lift housing to new frontiers. It’s still easier to get on welfare here than it is to get a building permit, limiting our growth, further fueling demand.

Mortgage rates won’t hit levels where buyers can’t qualify for loans, undermining both sales and construction. Housing is a critical component in the overall U.S. economy. Continuing economic growth and worker productivity will hold down rates. Builders are adjusting quickly this time around to softer demand, and scaling back construction to avoid a glut of unsold units. The current oversupply is less than in previous slumps. I was really concerned about too many foreclosures adding to the mix, but it’s not happening. Housing is inherently cyclical. In my 43 years in the business, it’s always been UP over the long haul. Remember: Any commodity is only worth what someone will pay for it. The Law of Supply & Demand says the market always sets the price. And when you reach a certain price, the phone starts ringing!

The “too much too fast” appreciation we’ve had may show up in flatter home sales and prices over the next year. That too was a cycle which HAD to end. But the Baby Boomers, and their offspring, the Echo Boomers, are continuing to enter the market. Remodeling is coming on big time, triggering a 6% consumer spending increase there, keeping demand high for appliances, building materials, etc. Nationally, median home prices figure to be up about 5%, both this year and next, down from 12% in 2005. Local performance (Chico homes enjoyed 17% appreciation last year) will vary widely. Sure, we’ve got a lot of unsold inventory, and prices are softer now, but “Chico, the City of Fortune” will always top people’s wish lists. There’s no doubt we have emerged as one of the most desirable places to live. And let’s hear a big amen to that!

Ken owns Ken DuVall & Associates, Realtors at 3rd Ave. & Mangrove in Chico.  Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year.  See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.