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Forecast: Job Growth, Homes Drop

A growing number of unsold homes in Orange County fueled by higher interest rates and slower income growth may lead to a 5% decline in median home prices this year, according to California State University, Fullerton’s 2006 economic forecast update on Tuesday.

“I don’t think there is a bubble,” said Anil Puri, dean of the college of Business and Economics at Cal State Fullerton. “The economy is on a pretty sound basis, and things should stay that way.”

Cal State Fullerton forecasts an increase of 26,100 jobs in OC this year, up 1.8% from last year. The growth rate is expected to decline to 1.7% in 2007.

Home prices are expected to continue strong in the first half of the year. But the double-digit rate that they grew at 2004 is likely to end soon.

The median price of a home sold here in March rose 10% from a year ago to $623,000, according to data released Tuesday by La Jolla-based market tracker DataQuick, a unit of Canada’s MacDonald Dettwiler and Associates. The price beats the old record of $621,000 in December.

But Puri said it’s taking an average of 8.9 months to sell a home, which is partly due to growing jitters over rising inflation, growing competition and rising rates. In early 2004, houses were taking less than a month to sell.

The Federal Reserve has raised short term interest rates in 15 increments of a quarter point to 4.75% since June 2004.

The inventory of unsold homes in OC was at its highest level in January since November 1998, Puri said.

Still, Puri doesn’t see a bursting of a housing bubble. Rather, inflation, higher rates and other supply and demand factors going on globally for manufactured goods and other commodities should lead to a slight decline in median prices this year, he said.

Home sales also may be slowing somewhat because incomes haven’t kept pace with the rise in median home prices, he added.

“We projected in October 2005, as part of our annual forecast, a slowing in the housing markets in 2006 and a lower median housing price by about 5% by year-end,” Puri said. “That forecast still looks quite reasonable to us.”

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