Don’t always believe what you hear or see when it comes to the failing health of the region’s housing market, DataQuick Information Systems analyst John Karevoll says.

“There is an awful lot of lousy information making its way around right now,” Karevoll told a near-capacity audience at the September edition of the Randall Lewis Seminar Series. “People need to really exercise some judgment when reading newspaper and magazine stories.”

Karevoll analyses the vast amount of real estate information from California and other states which DataQuick collects largely from public documents. Most of the historical information for Southern California and the Inland Empire dates back to 1988.

Despite recent declines in Southern California home sales and appreciation values, there is little statistical evidence supporting recent gloomy reports that the housing markets are in for a serious downturn, Karevoll said.

“We’re not seeing ominous signs; no where to the degree that there were ominous things happening back in the late 1980s and early 1990s,” Karevoll said. Notices of default – the first step in the foreclosure process – remain low in the region, and there has been little activity where sellers carry back second mortgages to help buyers, he said.

The region’s current home sales pace is about 25 percent below year-earlier levels, but sales from a year earlier were at record levels, Karevoll said, and the current sales pace is close to the historical annual average dating back to the late 1980s.

“I’m not sure that a 25 percent year-over-year decline means the sky is falling, as some people would have it,” he said.

Home price appreciation also is dropping, and could fall to zero appreciation by November or December and even go slightly below zero appreciation some months, Karevoll said. But as the rate of appreciation slows, some people forget the huge appreciation gains of recent years, Karevoll said.

“If we had prices double over the past four years as we have, then as things settle down, do we get to keep 90 percent of that price increase or 100 percent of that increase? I think that sometimes people can lose sight of the fact that there has been an enormous amount of equity increase. I’m not sure that a zero rate of appreciation is all that bad,” Karevoll said.

Many recent housing forecasts warn that home appreciation could fall below zero if there is a recession next year – something most analysts don’t believe will occur, Karevoll said.

“But housing is clearly stretched, and if there is a recession next year, which no one expects, the real estate market will be quite disproportionately impacted and things could get nasty for awhile. But otherwise, (price appreciation) likely will stay flat,” he said.

Forecasters are concerned and closely studying what impact falling home appreciation might have on California’s overall economy, Karevoll said.

“If we have zero appreciation, equity is not going to build up like it did two years ago. People are not going to be able to use their homes like ATM machines to finance vacations, refrigerators, cars and what not,” Karevoll said. “How much is that zero accumulation of equity is going to impact the economy?”

Karevoll has provided a public version of his presentation slides. Download his powerpoint here.