The median home price in California will increase 13 percent to $414,100 in 2004 compared to $366,450 this year, while sales for 2004 are projected to reach 548,500 units, falling 4.5 percent compared to 2003. The double-digit gain in the median price of a home, which California has experienced for the past four years, will again be fueled by the continuing shortage of housing across much of the state, according to California Association of Realtors economists. California typically gains nearly 250,000 new households, but will only build about 190,000 new housing units this year, creating a shortfall of about 60,000 units.

"While mortgage interest rates will remain near their historic lows next year, it won't be enough to mitigate affordability concerns in most regions of the state," said the association's President Toby Bradley. "Housing affordability in California will continue to be negatively impacted by rising home prices in 2004 and relatively slow growth in household income."

"We expect the California Association of Realtors Housing Affordability Index to fall 8 points next year to 19," she said. "At that level, less than one in five households will be able to purchase a median-priced home in California. That's a cause for concern as we move forward."

Home sales for California in 2003 are expected to reach a record 574,300 units, surpassing the prior sales record of 572,550 set in 2002, according to association economists.

"While the torrid pace of home sales will moderate next year, 2004 will likely be the third-strongest housing market in the history of the Golden State," said the association's Vice President and Chief Economist Leslie Appleton-Young.

"Southern California and the Central Valley have fared better economically in recent years than the San Francisco Bay Area, so it's no surprise that their respective housing markets have outperformed those in the Bay Area," she said. "Even so, the Bay Area median price remained the highest in the state."

"Continued strong demographics suggest that 2004 will be yet another robust year for real estate activity in Southern California and the Central Valley," Appleton-Young said. "The success of the housing market in the San Francisco Bay Area is closely aligned with the performance of the technology sector."

Realtors attending the California Association of Realtors EXPO 2003 in San Diego heard Appleton-Young deliver her highly anticipated forecast in person. The convention and trade show attracts more than 7,000 attendees.

Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to jnewton@jnpr.com.