Forecast: Home prices will rise while sales fall CALIFORNIA: Economists warn foreclosures could still be prevalent.

Byline: Gregory J. Wilcox, Staff Writer

California housing prices will slowly pull out of the doldrums next year, although unemployment and the credit crunch will continue to drag on the nation's largest housing market, a forecast released Wednesday said.

The annual market forecast from the California Association of Realtors predicts a 3.3 percent uptick in the median price of a previously owned home, from $271,000 this year to $280,000 in 2010. That would mark the first increase since prices began tumbling in 2007.

However, sales next year will drop from 540,000 this year to 527,500 homes in 2010, a 2.3 percent drop.

Association economist Leslie Appleton-Young said the sales activity will likely be strong enough to support a price increase, although there are several variables that could derail expectations.

"The wild cards for 2010 include foreclosures, loan resets, the labor market and the California budget crisis, as well as the actions of the federal government," she said.

Economist Christopher Thornberg, a principal at Beacon Economics, said it's premature to forecast an end to the real-estate crisis because of the number of outside factors.

"It's like saying the Dodgers are definitely going to win the game tonight. The wild card is how well St. Louis plays," Thornberg said.

Foreclosures, while off record levels, continue to roil the market - a trend that experts expect will carry over into next year. In fact, the Realtors group forecasts that foreclosures could account for nearly one-third of sales next year.

However, Thornberg and Appleton-Young each noted that banks and other lenders are holding onto seized properties instead of trying to get them off their books at discounted prices.

"The numbers you are seeing now strike me as (suggesting) a false bottom because so many of these (foreclosed) units are not being put on the market," Thornberg said.

The sales rebound does seem well-entrenched, though, with the cycle bottoming out in October 2007 as credit markets seized up.

Association President James Liptak characterizes sales next year as moderating to a more sustainable pace.

The housing market in 2009 has so far seen the second strong sales year in a row after two years of double-digit percentage declines.

This year's total is expected to increase 23 percent from 2008, which were up 27 percent from a year earlier.

Sales plunged by similar amounts in 2006 and 2007.

Liptak said the trends in 2010 will market the beginning of a 'new normal' for California's housing market.

"This 'new normal' likely will feature a steady stream of sales driven by distressed properties in the low end of the market, coupled with moderate home-price appreciation," he said in a statement.

With sales of low-end homes dominating the market, bidding wars erupted among prospective buyers and created tight inventory levels common when the market was booming earlier in the decade.

That should continue next year.

"Inventory will be relatively lean - under six months during the off-season months and a roughly four-month supply during the peak season," Appleton-Young said.

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