Chapman sees O.C. homes unafforable as late as 2011 (Inland Empire Homes to decline)

Chapman U. economist Esmael Adibi told a Building Industry Association of Orange County banquet Monday night that falling consumer spending and a drop in construction will lead to a recession at the national level. And while the Federal Reserve’s three-quarter-point interest rate cut last week will help the economy, it’s no cure.

Adibi, director of Chapman’s Anderson Center for Economic Research, repeated his forecast issued last month that homes will be overvalued by 20% even after prices fall 8.1% in 2008. It’s conceivable that home prices could drop by another 20 percent after this year, or prices could stay flat until income catches up, he said.

Based on ratios of median incomes to median prices, Adibi predicted that home prices won’t return to “reasonable affordability” until 2009 or 2010 at a minimum, and possibly not until 2011. Adibi noted that the last housing slump lasted 54 months and home prices fell 17.7% peak -to-trough. The current slump is in its 27th month.

At the BIA/OC’s annual housing outlook dinner, Inland Empire economist John Husing also spoke, saying that existing home prices are 20% too high in Riverside and San Bernardino counties and that new home prices there are 13% too high. He forecast a 15% decline in existing I.E. home prices and that inflation will eat up the rest of the overvaluation.

Separately, Adibi today issued his annual economic forecast for the Inland Empire. He’s calling for a 12.5% drop in the median single-family home price there in 2008.