The chief economist for the National Association of Realtors predicted yesterday that mortgage interest rates will rise to 6 percent next year but saw no evidence of a “double dip” in housing price declines.

Economist Lawrence Yun, keynoting the San Diego Association of Realtor's regional real estate summit, said California and San Diego are at the leading edge of a real estate recovery, based on rising prices and sales.

He noted that demand locally is strong enough that there is just a 2½-month inventory of homes for sale. With construction running at a sluggish pace, he said a shortage could develop next year as buying interest picks up.

“Usually, there is a 5 percent or 10 (percent) to 15 percent recovery” in sales, he said. “That's been the past, historic experience. California markets have seen a 50 percent increase and there have been some markets up 100 percent.”

Yun spoke to an overflow crowd of more than 700 local agents and other industry professionals at the Doubletree Hotel in Mission Valley.

Also on tap were the San Diego and state realty presidents, last year's national association president and other speakers who all aimed to calm the jitters of agents and brokers wondering about the state of the economy and outlook for housing.

Acting like a psychiatrist speaking to his patients on the couch, Yun calmly covered many economic and political issues facing the nation's real estate market.

He began with a confession about how he missed the real estate bubble of 2004-06. Surely, the system had enough checks and balances to avoid a runaway market, he thought at the time. “I was clearly wrong,” he said.

He said the mistake was in not realizing that lenders were indiscriminately handing out loans. But the situation became clear when he caught an HGTV interview of a young UCLA couple who had succeeded in buying a $1.5 million home with a view of the ocean.

“I was jealous!” Yun said, tongue-in-cheek.

Just two years ago this month, all started to unravel as homeowners holding subprime mortgages were unable to cover rapidly increasing monthly payments. Now, Yun said several California markets, including San Diego, are starting to recover as prices rise month by month and sales increase, sometimes 100 percent over last year's levels. He said the monthly changes are more indicative of the future than comparisons to year-ago levels.

Yun said San Diegans should be thankful that they aren't in Detroit, where homes are going for as little as $20,000 because of economic woes.

But in his presentation, he illustrated how San Diego had experienced a roller-coaster ride in housing prices — compared with the flat-line, no-change situation in Midwestern cities like Dayton, Ohio.

San Diego prices fell from the peak $517,500 in November 2005 down to $280,000 in January, and have risen to $320,000 as of July, according to MDA DataQuick.

“We are back to justifiable levels,” Yun said, adding that affordability is the best on record.

But nationally, he said, reports continue being issued that prices are expected to fall another 10 percent, though that may not apply to all areas of the country, especially in places where they never raced upward. He expressed concern that consumers will hear reports of further drops and will continue holding off buying and thus delay a housing recovery.

Prices are strongest in Pacific Coast states, he pointed out in one slide, helped along by what he called the “tipping-point phenomenon.”

“You had a bubble bust,” he said. “Nonhomeowners were reluctant to enter the market and are still cautious.”

But with word that buying is increasing, the fence-sitters “don't want to be left out” and buying has become acceptable in such markets.

With the Federal Reserve's very low short-term interest rates in force, mortgage interest rates have remained at historically low levels, currently between 5.2 percent and 5.5 percent for a 30-year, fixed-rate loan.

But come next year, Yun predicted that rates might rise to 6 percent or higher, if the Fed sees signs of inflationary pressures.

“That's not good news,” Yun said, but he argued that 6 percent is better than much higher rates first-time buyers' parents paid 20 or 30 years ago.

He also predicted that foreclosures will continue at high levels for the next 12 months because of the weak economy. But unlike last year, he said this year's foreclosures are being snapped up in many markets, including San Diego.

That demand for low-cost distressed properties leads Yun to discount any chance of a “double-dip” in price drops caused by an excess of distressed properties for sale.

Noting the historically low levels of housing construction, Yun said it is possible spot shortages might develop in places like San Diego, where the inventory of homes for sale is only about 2½ months. He acknowledged that the shortage might be somewhat artificial, since many lenders are holding off marketing foreclosures in hopes that asking prices will rise.

SOURCE: Union-Tribune