The California Association of Realtors forecast for home price appreciation to moderate to 10 percent in 2006 may be too conservative -- or too optimistic, depending upon who rebuts the trade group's forecast.

Either way, a 10 percent home price growth rate isn't small potatoes, just unusual in California where prices have been rising by as much as 25 percent a year during the last half decade.

Last week, during CAR's Centennial REALTOR Expo in San Diego to celebrate the association's 100th year, CAR released its annual forecast calling for the median home price to increase 10 percent to a record $575,500 in 2006 as sales fall 2 percent compared to 2005.

CAR economists say the state's perpetual supply-demand imbalance will continue to drive the market, but at a moderated level next year as the price of homes push more buyers out of the market.

Each year ends in California with an approximate 50,000 shortfall in housing units, based on the number of new households (250,000) and the number of new housing units constructed (an estimated 200,000 this year), CAR says.

"Declining affordability will constrain sales in 2006 at a greater rate than we've previously experienced, especially in markets where there are higher price points compared with the state as a whole," said CAR vice president of chief economist Leslie Appleton-Young.

Appleton-Young indicated the 10 percent price growth rate is a statewide average forecast. Other areas could be hit harder.

"Not all areas of the state will continue to experience the unprecedented double-digit median price increases of the past five years. Some high-cost areas, especially those in the more costly coastal regions, face a potential leveling off of median price gains compared with the 10 percent gain we expect for the state as a whole," she said.

But some say the housing shortfall is what makes a 10 percent home price gain appear conservative. It's the supply-demand imbalance that's largely responsible for Golden State home prices growing by 25.16 percent last year and nearly 110 percent in the last five years, according to the Office of Federal Housing Enterprise Oversight .

"Where do we get the idea that the price of houses should be at some particular point?" asked Michael Carney, executive director of the Real Estate Research Council at California Polytechnic University in Pomona where he's a professor in finance and real estate.

"When you say there's a bubble you say there's some price homes should sell for," added Carney who scoffed at the 10 percent price growth forecast.

Carney says basic supply-and-demand economic forces are at work in California and that's what causing home price appreciation to hum along at 20 percent or more in recent years.

"I have been forecasting a slowing of the current rate, but somewhere in the 15 or 20 percent area. There's nothing to indicate anything otherwise," said Carney who conceded that "unanticipated shocks," those unforeseen events that appear when least expected, could render economic models useless.

"Of course, you can say anything you want for 2006. Nothing is certain. I emphasis the joker in the deck, but the only thing that's going to cause prices to rise slower is an increase in long term rates and I'm not talking about 8 or 9 percent," said Carney who for decades has tracked the state market and publishes a California home price survey, residential real estate statistics and reports on related economic indicators.

Another long time market monitor and "Campbell Real Estate Timing Letter" publisher Robert Campbell says he sees at least two jokers at the top of the deck -- unaffordable home prices and "peak oil" -- the belief that a finite supply of oil in the Earth will soon lead to peak production, but demand will continue to soar, pushing prices for oil and it's numerous related uses into the stratosphere.

"I think 10 percent is 10 percent too high. I think we are going into a three- to five-year correction. Some parts of Southern California are already appreciating at only 5 to 6 percent," said Campbell, who for more than 20 years has called the market based on key indicators -- interest rates, building permits, home sales, loan defaults, foreclosure sales and other related indices.

He says home prices are already out of reach for too many people as higher oil and oil-related costs are taking ever larger chunks out of households' disposable income.

"It's not just gasoline in your car. Soon it will be heating and utility bills. Flying from California to Hawaii will cost $1,500. That's going to slow us down. Our economy isn't generating jobs and productivity and they type of things to keep economy growing. We live a temporary lifestyle based on home values and we think we have a perpetual money machine, but we can't continue this imbalance," Campbell said.

In California, only 16 percent of households can afford the median priced home, according to CAR. In nearly a half dozen regions, one in 10 households -- or less -- can afford the median priced home.

"Yes the demand is greater than the supply, but at some point people begin to say, 'I don't care if the demand is greater than the supply. I can't afford it and I won't pay it'," said Campbell.

Indeed Californians said just that during the state's Great Home Price Crash of 1990, when prices tumbled 35 to 50 percent.

Carney says Californians' penchant for purchasing property is more powerful than oil punching holes in purses. Despite the recent "End of Suburbia" academic documentary's claim that the world's oil production has just about peaked, Carney says the world remains awash in untapped reserves, especially in Alaska and Canada.

Once oil, gasoline and related prices rise high enough, American's thirst for oil will prompt new exploration and extracting the black ooze from shale fields and other areas where it is now too expensive to drill.

He also says the economy is more resilient than indices indicate.

"The economy is doing better than indicators tell us. There was a tremendous increase in wealth during the computer and telecommunications era and a large part of that has gone into housing. As long as the supply doesn't keep up with the demand, I don't see anything to cause the demand for housing to fall," Carney insists.

Should a downturn somehow materialize, he says, history will only repeat itself.

"A lot of people are waiting for the bubble to burst so they can step in and when they do the buying demand will just push prices up again. If you have some money where are you going to invest it -- particularly since prices keep going up and you can get cheap financing? The stock market?" asked Carney.

Published: September 27, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.