All hair stylist Erin Bond wants is a decent two-bedroom condo in Orange County, preferably in Huntington Beach.
But all she can afford is $400,000 to $420,000.
In a county where the median price of a condo in May was almost $500,000, she's not sure there's anything in her price range she can live with.
"It's pretty disappointing," said Bond, 35. "You can't even buy anything that low. I mean, there are things out there, but they're not nice."
So Bond's plan is to wait until the market goes down again. And if it doesn't, "I would continue to rent."
A lot of homebuyers are facing Bond's conundrum.
For 62 straight months, Southern California home prices have gone in one direction. Up.
Five years ago, you could snatch up a median-priced condo in Orange and Los Angeles counties for about $280,000, 76 percent less than today's prices. A median-priced house cost $323,000 in L.A. County five years ago and $495,000 in O.C., about $260,000 less than today's prices in both counties.
That was then. What should a buyer do now?
Will prices keep rising? Or as Bond thinks — along with some real estate agents — are prices close to the top?
We asked a half-dozen economists and industry analysts what the future holds for home prices in the region. Among their answers:
* Southern California home prices aren't about to drop. In fact, they believe prices will keep rising for two more years, at least, and possibly longer.
* The market isn't in a bubble — yet — although bubble talk is starting to "raise its ugly head" at cocktail parties, one economist said. Some analysts are saying Southern California home prices are showing signs of being overvalued.
* If you're thinking about buying a home, now just might be the time to act — provided you don't overextend yourself and you plan to live there awhile.
Here are five key questions about where Southern California home prices are heading in the future.
Are we at the peak?
Not one of the economists we interviewed thinks we are, at least not for entry-level homes.
Luxury homes, priced at $2 million and up, may have reached a price peak and are facing an oversupply of listings, analysts said.
Nominal home prices have surpassed pre-recession highs in Orange and Los Angeles counties. Riverside and San Bernardino counties are about 18 percent below their price peaks. But none of those counties has reached pre-recession peaks in inflation-adjusted dollars.
One back-of-the-envelope calculation shows if home prices were to keep rising at the current appreciation rate, and inflation were to continue at the current rate, Orange County's median home price won't get back to the pre-recession peak after inflation for about two to three years.
Another fact to consider: During the last market run up, Southern California home prices increased year over year for 126 consecutive months, or 10.5 years. That's twice as long as the current streak in home price gains.
Lastly, analysts say home prices aren't rising that much.
Price increases averaged 6.3 percent in Southern California in the past year, ranging from a low of 5.4 percent In Orange County to a high of 7.9 percent in San Bernardino County.
Christopher Thornberg, a founding partner of Beacon Economics and former UCLA economics professor, noted that's only slightly greater than the rate of inflation. Pat Veling, president of Brea-based Real Data Strategies, believes the true rate of inflation is closer to 4-5 percent.
How much longer will home prices go up?
Two years at least, most economists interviewed said. Possibly longer.
How much longer prices rise depends on what happens to the overall economy.
"At some point, there's going to be a correction, but I don't see it on the horizon," said Veling. "Sellers want more than sellers got six months ago."
Projections by the California Association of Realtors show a gradual decrease in home price appreciation over the next few years, said Oscar Wei, a senior economist for the group. For example, CAR projects prices will go up 5 percent statewide in 2017, 4 percent in 2018, and 2.5 percent in 2019.
Home prices are forecast to rise 5 percent to 6 percent this year in Orange County, while rising between 8 percent and 9 percent in the Inland Empire, Wei said.
"But I don't think in the next couple of years you're going to see a dip in price," he said.
Assuming the Gross Domestic Product continues to grow at 2.5 percent and mortgage interest rates stay below 4.5 percent, Southern California home prices could be going up at 6 percent a year for the next six to seven years, Thornberg said.
At 6 percent a year, the median home price could reach almost $700,000 in Southern California by 2023, $500,000 in Riverside County, $800,000 in Los Angeles County and nearly $1 million in Orange County.
"Given the supply shortage and the strength of the California economy, (that's) perfectly reasonable," Thornberg said. He added: "Reasonable here means it's not a bubble and they won't collapse."
Are we in a bubble now?
No.
"To me, there's nothing like these numbers that smells (like a bubble), that walks like a bubble. We don't have nearly enough housing to meet the demand," Thornberg said. "The reason that (2005) was such a huge nasty bubble is because a lot of people were borrowing money they couldn't afford to pay back. Now, credit is hard to get. Credit is locked down."
Statistics show vast differences between the pre-recession housing bubble and today's market, Wei added. Consider:
* Los Angeles and Orange counties had an 11.5-month supply of homes for sale in the spring of 2007 compared with under four months available this year. Riverside County had an 8.5-month supply of listings for sale, vs. just under four months today; San Bernardino County had a 16.5-month supply, vs. four months today.
* In California as a whole, 43 percent of borrowers had second mortgages in 2006, vs. 4.8 percent last year.
* California's median down payment was 11.8 percent of the purchase price in 2006, vs. 18.6 percent last year.
"We don't have as many people over-leveraging (their homes)," Wei said.
G.U. Krueger, president of Krueger Economics, said talk about a housing bubble "is starting to raise its ugly head."
Some of that is "cocktail party talk" and some analysts are questioning whether the Southern California housing market is overvalued.
"It doesn't mean there is a bubble. The problem with this talk is it could affect expectations," Krueger said. "People will start to question whether to pay the prices the housing market is asking for. There could be more negotiation going on. But I don't think it will result in home price declines."
CoreLogic data suggest that Orange and Riverside counties are overvalued and Los Angeles County is modestly overvalued, said Khater, the firm's deputy chief economist.
U.S. home prices and rents are high relative to incomes and are back to 2003, pre-bubble levels, he said. Down payments also are higher today nationally and most likely in California than at the peak of the last housing boom in 2004-06.
"More importantly, prices continue to rapidly increase in the lower end of the price distribution, where borrowers are most stretched," Khater said. "In Los Angeles, lower end prices are up 8 percent to 10 percent on a year-over-year basis, compared to 4 percent to 6 percent for the upper end."
When is the next recession?
Not for at least two years, economists said.
"Over the next two years, the recession probability is very low," said UCLA economics professor William Yu, a member of the team producing the UCLA Anderson Forecast. "But beyond two years, that is very difficult to say."
A recent report by Newport Beach-based investment firm Pimco determined the probability of a recession in the next year is less than 10 percent. But, the probability is much higher for a recession in the next five years, said the company's annual "secular outlook."
"If history is any guide, we believe the probability of a recession sometime in the next five years is around 70 percent," the outlook said.
A major global calamity — like a new Korean War, a messy breakup of the European Union or a surge in oil prices — could trigger a recession, but forecasting exactly when is an extremely murky business, said Joachim Fels, a Pimco managing director and global economic adviser.
"Everybody knows that it is impossible to forecast the ups and downs of the business cycle several years ahead," Fels wrote in 2016.
Is it too late to buy a home?
Veling, the Brea industry analyst and consultant, has advised renters for the past four years to get into the housing market while interest rates and prices still are low.
"All those who did not act are in a world of hurt," Veling said. But, he added, it's not too late.
"Anybody who buys houses today will probably be fine," provided they treat it as an asset, he said. "It still boils down to buy what you can afford."
While it's definitely more expensive to buy a home today than it was a few years back, the cost of buying will be even greater down the road, added Wei, the CAR economist.
"If you wait, home prices probably will go up about 8 percent or so in the next couple of years. Plus you're probably going to see some increase in mortgage rates," he said.
For example, Wei predicted mortgage rates will go up half a percentage point this year and half a percentage point next year.
"You're most likely seeing an increase of 10 percent or 12 percent in your mortgage payment" if you wait, Wei said.
Seasonal price fluctuations mean home shoppers do get a bit
of a breather during the latter half of the year, when home buying slows and prices dip slightly.
For example, Southern California home prices for deals signed in December averaged 3 percent less than deals signed the preceding spring, CoreLogic figures show. In Orange County, prices averaged 2.5 percent less.
"If you see something you are interested in and you can afford it — maybe not a single-family home, but a condo or a townhome — (buy it) and start building equity," Wei said. "I wouldn't wait."
