The median home price in California will increase 15 percent to $522,930 in 2005 compared with a projected median of $454,720 this year, while sales for 2005 are projected to reach 603,700 units, falling 2.5 percent compared with 2004. The double-digit gain in the median price of a home, which California has experienced for most of the past four years, will again be fueled by the continuing shortage of housing across much of the state, according to association economists. California typically gains nearly 250,000 new households, yet only will build about 200,000 new housing units this year, creating a shortfall of about 50,000 units.

"Home buyers next year will face slightly higher mortgage interest rates, approaching 7 percent by year's end, which will make it more difficult for many families in California to be able to afford a home," said California Association of Realtors President Ann Pettijohn. "Coupled with rising home prices, affordability in California will fall to an all-time annual low of 16 percent next year."

"We expect the economy in 2005 to generate modest growth in jobs both nationally and here in California, while productivity gains and competition will likely keep inflation in check next year," said the association's vice president and chief economist, Leslie Appleton-Young. "While the increase in interest rates will be enough to moderate the pace of home sales in 2005, population and household growth will continue to put pressure on home prices, resulting in greater price appreciation in California compared with the nation."

Home sales for California in 2004 are expected to reach a record 619,300 units, surpassing the prior sales record of 601,770 set in 2003, according to CAR economists.

"Regionally, the areas with the greatest potential for home sales growth are the inland regions of the state—the Central Valley and the Inland Empire region in Southern California, which have experienced significant population gains in recent years as well as robust new home building activity," said Appleton-Young.

"The Southern California housing market in 2005 is likely to slow from the torrid pace of sales and rapid price appreciation that we experienced throughout most of this year," she said. "The San Francisco Bay Area housing market, which advanced at a more measured pace than other regions in the state this year, is likely to see less slowing in 2005 compared with other areas of the state."

The California Association of Realtors is one of the largest state trade organizations in the United States, with more than 150,000 members dedicated to the advancement of professionalism in real estate. The association is headquartered in Los Angeles.

Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org.