Q & A;: Industry Leaders Weigh in on Low Interest Rates and a Slowing Economy
Home sales remain strong in Orange County, fueled by low interest rates and a continuing shortage of supply compared with demand. But an economic downturn could affect the market. The Business Journal’s Daniel D. Williams asked several industry leaders: “How will a slowing economy affect home sales?”
LES WHITTLESEY
Principal
Whittlesey Doyle Inc.
Conventional wisdom says that with a slowing economy you have side benefits such as lower interest rates, which always spur the market. The supply of housing in Orange County is very restricted and we are pretty much not meeting the demand. You could have a fall off of demand, but supply is so restricted, it shouldn’t have a huge impact.
PATRICK VELING
President
Real Data Strategies Inc.
OC will be less affected than other Southern California markets due to continued supply constraints. Sellers will be forced to get more realistic. Fewer homes will sell, but the average sale prices will continue their climb, though not as rapidly as years past.
CHRISTINE DIEMER IGER
CEO
Building Industry Association of Southern California Orange County Chapter
My answer is yes and no. The builders are selling everything they build and the market is still hot, especially at the first-time buyer rates. But something to understand is, there’s a lag and we’re actually ahead of the slowdown. In the business of building, they made decisions on what to build one to two years ago. Anything standing now is selling. Anything that’s being built now will not be affected by the slowing economy because they’ll be up 12 to 18 months out.
I will say, if interest rates weren’t so low, people might be afraid, but they are low and the homes are selling like hotcakes.
So, I don’t think it’s going to have a major impact. With the lower rates, homes are more affordable, people are getting good value and it’s a good investment.
RAY ELDRIDGE
Senior Vice President
CB Richard Ellis, Newport Beach office
Orange County probably has one of the highest qualities of living in the U.S. and in the world (and) prices have gone up irrespective of the economy and interest rates because the lower interest rates are not that new. They’ve been low for a couple of years.
We’re still priced very favorably in comparison to Northern California and Los Angeles. I’m betting against a flushing out of home values in Orange County. Currently, there’s a housing shortage and the amount of land is alarmingly low. We can’t build enough for the demand. For an example of the imbalance, we’re getting 40,000 to 60,000 new jobs per year in Orange County. This creates a demand for 8,000 new apartments per year and we’re only building between 2,000 and 4,000.
ESMAEL ADIBI
Director of the A. Gary Anderson Center for Economic Research
Chapman University
Our research has shown that interest rates are important, but that the job market is far more important. Because of growth slowing, the market is going to slow down, somewhat. In addition to that, short-term rates are probably at their lowest right now.
MICHELLE WOLKOYS
Managing Director
The Meyers Group
The low interest rates have helped buyers at this point and will continue to do so in the future. Although there’s the potential for a slowdown, the demand is so strong that we’ll likely have a soft landing.
Where we’ve had a shortcoming is on the supply side. At our peak, we had 10,000 units (per year). If we had the land to supply 10,000 units, we could sell it again.
If anything, we won’t see the price appreciation. The prices will curtail with the slowdown of the economy. And this will probably give us a stronger balance.
MARK HICKS
Vice President of Sales and Marketing
D.R. Horton
Product-wise, we deal mostly in the multi-family segment of the market. We’ve not anticipated or seen a slowdown in our market segment. We’re comfortable where we are.
Right now, I don’t see the market stopping. There’s still a housing shortage. As a builder, 2000 was great. We were able to move the pricing up and keep things profitable. This year that market should stay strong.
CRAIG ATKINS
Principal
O’Donnell/Atkins Co.
Low interest rates are better for us. The slower economy should hurt home sales, but lack of supply will negate or neutralize that.
RAYMOND POLVERINI
Vice President
CT Realty Corp.
A slowing economy offsets home sales because people will worry about their job security. You get nervous. You don’t want to take on that added debt in an uncertain job market. The slowing economy has that effect even if you’re not affected. You see your friends or neighbors out of a job and you get scared.
Now, whether the economy slows enough in Orange County to see job loss remains to be seen. I don’t believe the economy is slowing like that in Orange County.
