The go-go days of the housing boom may be nearing the finish line, ending the hefty annual
appreciation Santa Barbara County residents have grown accustomed to over the past several years.
Signs pointing to a housing slowdown have grown more prevalent this year, and more economists now
say the market may finally be close to or at its peak.
"I think we're at the peak now," said Mark Schniepp, economist with the California Economic Forecast.
"I think this is it, although the evidence we have at the moment is not entirely convincing."
The California Economic Forecast presented its "2005 Real Estate and Economic Outlook" to more
than 300 people attending a conference held Thursday at Fess Parker's Doubletree Resort in Santa
Barbara. The conference is held each year in February and September.
Mr. Schniepp isn't the only one who thinks the market may be cresting. Economists at the UCLA
Anderson Forecast voiced similar findings this week.
UCLA senior economist Christopher Thornberg was quoted in a Los Angeles Times story last
Wednesday saying, "There are some signs that the housing party is ending."
Mr. Thornberg added that a housing slowdown would have a 50 percent chance or more of sparking a
recession at the end of 2007, the Times wrote.
The housing sector has been leading economic growth for the past few years and "dominating all other
sectors" of the economy, according to Mr. Schniepp.
"We have a lot of eggs in one basket," he said, and that dependence on the housing sector creates
vulnerability in the economy.
Beyond the economy's lopsided leaning toward housing, another red flag signaling the end of the boom
is the heavy dose of real estate talk, Mr. Schniepp said. The current chatty scenario mirrors much of the
same characteristics seen in the final run of the dot-com boom.
"Real estate talk is unabating. Everyone is talking about it. It's the number one topic of conversation
these days everywhere you go," he said. "And that's dangerous."
Beyond simple conversation, a rash of advertisements for get-rich schemes in real estate investments
have mushroomed, tempting novices with promises of "how to make a fortune buying homes with no
money down," or "flipping homes for big profits."
Home Buyers are also taking bigger risks when it comes to financing their mortgages. Interest-only and
adjustable-rate loans have soared in popularity over the past two years, leaving an unprecedented
number of Buyers dependent on steep appreciation rates to pay off their loans in time.
But Mr. Schniepp warned "that price appreciation is slowing everywhere in California."
He said, however, that "the extent of the slowing is less than what's been forecast."
On the South Coast, appreciation gains in the median price so far this year have tempered most in the
exclusive Montecito area.
Median price is the point where half the homes on the market sell for more and half sell for less. It
represents the mix of all homes sold, not appreciation rates on individual properties.
In Montecito for the eight-month period from January through August, the median price hit nearly $2.5
million -- a gain of only 2 percent from the same period a year ago. During the same time frame in
2004, the Montecito market had gained nearly 23 percent.
For the full year in 2004, the area posted a median price gain of close to 33 percent, compared with 13
percent in 2003 and 3 percent in 2002, the California Economic Forecast reported.
Mr. Schniepp said the cooling of Montecito's median reflects Sellers lowering their asking prices to
speed up sales.
Dan Encell of Prudential California Realty said Montecito has more room for increases in the median.
"As for the rest of the market, I would agree that we're near the peak," Mr. Encell said. "But I think
Montecito still has plenty of upside growth.
"It's a very small market with a lot of Buyers who want to live there," he said. Baby boomers are just
hitting their chief retirement years, and they can live anywhere they want. Many people want to live in
Montecito, but the supply of homes is low and demand is constant."
Far north of Montecito, where the supply of homes has steadily grown, there are signs of a flattening
market.
Price gains in Santa Maria and Lompoc -- which boasted median increases in the 30 percent range for
most of last year and through the recent spring, have dipped into gains of about 20 percent in recent
months.
"The North County," Mr. Schniepp said, "looks like it's reaching a plateau."
mzate@newspress.com
