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Valley housing market continues to thrive
Growth has sheltered valley from specter of a crash in nationwide real estate boom

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CATHEDRAL CITY - Economists have issued stern warnings about a supposed imminent end to the sizzling real estate market across the country, with home appreciation soaring by as much as 30 percent and sellers making tens of thousands off sales to eager buyers. The bubble could pop, headlines have warned, if the market capitulates to soaring prices that cannot be sustained forever.

But even amid rising prices and slowing appreciation rates, experts at a forum on Tuesday proclaimed the Coachella Valley housing market in excellent shape, thanks largely to projected explosive growth and rising demand for houses and land in the years ahead.

One speaker at the seventh annual State of Real Estate in the Coachella Valley forum invoked a popular senior troupe of musical icons to describe the state of the housing market.

"The market here is a little like the [Fabulous] Palm Springs Follies," said Patrick Veling, president of Brea-based research firm Real Data Strategies. "It's slowing down a little, but it's still kicking - and in some cases, it's still kind of hot."

Tuesday's annual forum was presented by the California Desert Association of Realtors, with several corporate sponsors, including The Desert Sun.

The ramifications of a healthy residential market are sweeping for buyers, sellers, renters and investors alike, not to mention the tens of thousands of homeowners in this corner of Southern California who aren't interested in selling, largely because they've seen their equity grow in this era of soaring home-appreciation rates.

Addressing an audience of more than 400 at the Doral Palm Springs Resort, experts also acknowledged numerous challenges the valley will have to face as it grows. Those include dealing with dropping home affordability, attracting more high-paying jobs and balancing development needs with environmental concerns.

What's behind the rosy forecast for the local housing scene? In one word: growth. Citing state figures, Beth Allan-Bentley, marketing research manager for The Desert Sun, said the valley's population is booming. It has grown 59 percent in the past 15 years, to its current 395,700. That growth rate tops those for Riverside County, California and the nation.

The state estimates the local population will pass 600,000 by 2020 and 1.1 million by 2066 - although Bentley noted that based on current growth patterns, the latter estimate may be too conservative.

A big supporting factor for the valley housing market is that many buyers continue to flock here from places where prices are much higher than the local median of $375,000.

"Unfortunately (for local buyers), that does drive our market up," Bentley said.

The primary force keeping actual building behind the pace of building permits issued is a shortage of qualified construction workers and supervisors, she added.

The valley in-migration has not only boosted home-building, but now sets the stage for an increase in commercial building, particularly in the east valley.

Susan Harvey, co-owner of Desert Pacific Properties, which specializes in commercial real estate, pointed to Indio and La Quinta as hot growth areas. And an area off Highway 86 in southeastern Coachella "is just on fire" with proposed commercial projects looking to tap into a growing residential base, she said.

She said commercial and residential developers are addressing aesthetic concerns by boosting parks and green-space areas linking their projects.

Keeping natural balance

While the valley has only seen about a third of its total developable land of more than 266,000 acres actually developed, more needs to be done to protect conservation areas, experts said.

One long-term priority is returning the Salton Sea area to the status it enjoyed as a recreational mecca during the 1950s and 1960s. Poor water-management oversight allowed the lake to become plagued with environmental problems.

Long-term improvement plans could make it possible to build more than 200,000 homes in the Salton Sea area, said Ron Enzweiler, executive director of the La Quinta-based Salton Sea Authority. But that will take a massive restoration estimated to cost $1.3 billion in initial capital and $50 million for annual operations.

One way to pay those costs would be through assessments on home builders. "We may be at a place in 10 or 12 years where you'll be seeing the sea in a more usable state," he said.

Bill Havert, executive director of the Coachella Valley Mountains Conservancy, said the valley will need to heed environmental concerns as it addresses growth needs. A long-term multi-species protection plan is being followed, for instance, as the valley plans for improvements at five Interstate 10 interchanges.

At least one-quarter of all available valley land will be conserved over the 75-year span of the multi-species plan, Havert said.

Optimistic outlook

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.

What exactly is a bubble?

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.

Bubble trouble here?

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

Job losses

UnaffordableHigh mortgage interest rates

Large numbers of motivated sellers

Leveraged builders with too much product

Psychological factors, including buyer fears and a rise in sellers who think the market has peaked

For now, the valley has these factors warding off a bubble-bursting:

Rising demand amid population growth

Demand for homes among retirees

Buyers selling homes in more expensive areas and investing proceeds here

Owners selling because they want to, not because they have to

Source: Real Data Strategies, Inc

What do your neighbors think?

On Tuesday, we asked mall patrons at Westfield Palm Desert what they thought about housing prices, affordability and appreciation. Here’s what they had to say.

“I just moved here from Santa Barbara, so to me, it’s very affordable, but for the average person it’s gone crazy.”

Danette Romero
Indio

“I think the market has softened in the last three to four months. I don’t see a return to the hot market for awhile. Interest rates are now a factor in this.”

Richard Searle
Palm Desert

“I think it’s too expensive. It’s catering to ritzy, old people it’s catering to the upper class. Poverty out here is really bad. Less golf courses and gated communities. We need more affordable housing.”

Leslie Lewis
Palm Springs

What they said...

Here’s a summary of points made by speakers at Tuesday’s annual State of Real Estate in the Coachella Valley forum:

“Current plans create a good degree of certainty that 27 at-risk species are protected in the coming 75 years, while still allowing for long-term development outside conservation zones. At least one-quarter of all available valley land will be conserved.”

Bill Havert
Executive director, Coachella Valley Mountains Conservancy

“Noted that more than 60 percent of the 9,300 new housing permits issued in 2004 were in the east valley. An estimated 75,750 new valley households over the next 15 years, will bring the need for new schools, retail outlets and other services.”

Beth Allan-Bentley
Market research manager, The Desert Sun

“Indio and La Quinta remain hot growth areas, and an area off Highway 86 in southeastern Coachella is just on fire with proposed commercial projects. Developers are addressing aesthetic concerns by boosting parks and green-space areas linking their projects.”

Susan Harvey
Desert Pacific Properties

“The valley should see housing appreciation from 10 (percent) to 15 percent in 2006. But current sellers will need to lower asking prices due to a growing unsold resale inventory. No housing bubble is imminent as long as job growth remains strong, no natural disaster occurs and interest rates don’t spike too sharply.”

Patrick Veling
President, Real Data Strategies Inc

Facts about the Coachella Valley's Growth

In the past 15 years, the valley’s population has grown 59 percent, outpacing Riverside County (52 percent), Los Angeles (12 percent), California (21 percent) and the U.S. (18 percent).

Between 2005 and 2020, a projected 212,100 permanent residents will move to the valley.

The valley’s population is expected to double in the next 25 years to about 800,000. By 2066, it should surpass 1.1 million.

As of January 2005, more than 395,700 people were living on the developed 83,000 acres of land in the valley.

That’s a density of 3,051 people per developed square mile — up 13 percent from 2,710 in 2004. By comparison, Los Angeles had a density of 7,872 as of 2000.

The valley has about 183,000 acres of land that could be developed. That’s more than twice the space that’s already been developed.

Sources: California Department of Finance, Southern California Association of Governments, Coachella Valley Multiple Species Habitat Conservation Plan

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