California faces a double-digit fall in housing prices over the next year and a half, a major builder, a lender and the state treasurer said on Monday in a discussion of how long the subprime mortgage crisis would drag on the Golden State.
As attendees at a conference voted on how bad they thought the housing market could get in the most populous U.S. state, panelists Jeffrey Mezger, chief executive of home builder KB Home; Angelo Mozilo, CEO of lender Countrywide Financial; and California State Treasurer Bill Lockyer discussed the question in comments picked up by a microphone and audible in the audience.
Mezger saw prices falling about 10 percent to 15 percent. The others were all 10, maybe 10 plus. The north side of 10, Lockyer told Reuters later. I'm probably the least able to forecast, but that seemed like a reasonable trend.
California real estate over the last decade or so has been a roller coaster that has brought substantial profits to some and bankruptcy for others.
The state's median home price, which reflects prices for new and existing houses and condominiums, reached a peak of $484,000 in spring, slightly more than doubling from $240,000 in December 2001, according to DataQuick Information Systems.
Many Californians who could not qualify for traditional loans took out riskier mortgages in the so-called subprime market, and so long as home prices rose, most borrowers prospered and could refinance into new loans if need be.
But prices have been falling for more than a year. The September median home price was $430,000, down 7.5 percent from both the previous month and a year earlier, DataQuick said.
Foreclosures have mounted and large publicly traded builders have been forced to take massive write-downs and write-offs for the land and inventory they hold. Last month, KB said that California accounted for 50 percent of the charges.
KB has increased production of smaller houses in California, Mezger added in the panel discussion at the Milken Institute State of the State conference.
He later said in an interview that urban areas would not see as much price pressure as suburban ones. Where the jobs are will do better, he said.
Subprime borrowers comprised a relatively low percentage of buyers of KB Homes, about 6 percent in the second quarter, before the market for such mortgages evaporated.
Mezger and the others emphasized that they simply were speculating. Mozilo, who could be overheard saying he thought the fall would be about 10 percent, later told Reuters: You may have heard that. That was just talk between (panelists.) I really don't know.
Countrywide last week forecast that U.S. home prices overall would drop 7.6 percent by the end of 2008.
A large majority of voting conference attendees saw a decline of 5 percent to 15 percent or more in California home prices in the next 18 months.
Panel moderator and real estate lawyer Lew Feldman of Goodwin Procter said he expected a relatively low drop of 7 percent to 8 percent, agreeing with Mezger's thesis that most of the fall would be in secondary and tertiary markets.