I found a brilliant gem from Pat, who says he doesn't make predictions, about the Palm Springs area back in 2005 from the desert sun...
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<strong>Optimistic outlook</strong>
Veling estimated that the valley housing market should see appreciation of 10 percent to 15 percent in the coming year. That's down from the 30 percent and higher figures seen in 2004 and early 2005, but still higher than returns seen with most other equity vehicles such as stocks, he said.
California Association of Realtors economist Leslie Appleton-Young recently projected valley appreciation between 10 percent and 18 percent.
Other economists have shied away from such rosy forecasts. Chapman University economist Esmael Adibi projects valley housing appreciation around 5 percent, based on overall growth expectations for the inland county region. UCLA economist Michael Bazdarich recently contended that even Adibi's estimate could prove overly optimistic.
Veling told his audience that despite his own bullish forecast, real estate agents need to be sure their selling clients have realistic expectations of what their homes will fetch. Currently, sellers are having to lower their asking prices as unsold resale inventory has risen to more than twice year-ago levels.
That has occurred even as sales prices overall have not dropped significantly, and on average are still appreciating at around 20 percent from a year ago in most valley communities - led by gains in new-construction homes.
Veling said the valley has a number of bubble-proofing factors in its favor, including continued demand for local homes among retirees, the fact that most owners sell their homes because they want to - not because they have to - and an overall supply of homes that continues to lag demand.
Generally, Veling said the local housing market is not in danger of bursting a bubble as long as there is no natural disaster that affects the area, no drastic drop in job creation and no major jump in mortgage rates, among other factors.
<strong>What exactly is a bubble?</strong>
An economic bubble occurs when speculation in a commodity - such as homes - causes the price to increase, which produces more speculation. The price of the good then reaches absurd levels and the bubble is usually followed by a sudden drop in prices, known as a crash.
The crash that follows an economic bubble can destroy a large amount of wealth and cause continuing economic malaise. While a few economists warn of a national housing bubble, most say local housing and job markets vary so much that a countrywide downturn is unlikely.
<strong>Bubble trouble here?</strong>
Regional experts say the Coachella Valley is not in immediate danger of seeing a sharp downturn in the local residential real estate scene ? known in economic circles as a housing bubble ? mainly because local population growth remains relatively high compared to other areas. In turn, that is driving the demand for valley land and houses. Aging baby boomers who are selling homes in other parts of California and the country and investing their equity in the desert are contributing to the vibrant housing scene, experts say.
According to Pat Veling, an analyst with Brea-based research firm Real Data Strategies, these things would have to happen before the valley reached bubble-popping territory:
# Rapidly falling demand</em> Check, demand plummeted out there faster the subprime shops could be shut down.
<em><strong># Job losses</strong></em> Yup, the IE leads SoCal in job losses, including the sacred professional business services sector.
<em><strong># Unaffordable high mortgage interest rates</strong></em> Sorta a check, the mortgage market is dead, but rates remain low.
<em><strong># Large numbers of motivated sellers</strong></em> Check, I would consider banks as motivated sellers.
<em><strong># Leveraged builders with too much product</strong></em> Check, there was so much product out there, the land has a negative value.
<em><strong># Psychological factors, including buyer fears and a rise in sellers who think the market has peaked</strong></em> Sorta a check, more like people got that this run up was not economically sustainable. Now, the market there continues to crash.
<em>For now, the valley has these factors warding off a bubble-bursting:
<strong># Rising demand amid population growth</strong></em> Uh... population wasn't growing all that much, and many of the estimates were overestimated.
<em><strong># Demand for homes among retirees</strong></em> Uh huh... all those boomers retiring, which do not create jobs.
<em><strong># Buyers selling homes in more expensive areas and investing proceeds here</strong></em> Too bad they can't sell their homes in the "more expensive" areas.
<em><strong># Owners selling because they want to, not because they have to</strong></em> Banks have to sell, and owners who can't afford their payments have to sell, or give back to the bank, who have to sell even more than the seller before.
<em>Source: Real Data Strategies, Inc </em>
