It was a joke not many people in the room found funny.

Smiling slyly, Robert Kleinhenz, the deputy chief economist at the California Association of Realtors, looked up from the podium and asked who in the room had heard of the University of California, Los Angeles Anderson Forecast. A slight murmur of acknowledgment rose from the collected crowd of mortgage brokers, real estate agents and industry insiders.

“Their claim to fame is that they got the 2001 recession right,” Kleinhenz said, a slight sneer on his lips. “But, in 2002, 2003, 2004 and 2005, they said ‘housing bubble, housing bubble, housing bubble, housing bubble.’ So they got it wrong four years in a row.”

Maybe it was just a bit close to the bone. But the meaning behind Kleinhenz’s quip should’ve been clear to anyone who’s been following the debate surrounding Southern California’s housing market.

On one side of the debate, sit people like the Anderson team, who’ve been arguing all along that home prices in Southern California are ridiculously overvalued and will eventually have to come back down to normality.

On the other side of the fence, people like Kleinhenz argue that the price increases – around 150 percent in much of the region since in the last decade – were merely due to an historical under-supply of houses; houses were in short supply and everyone wanted to live here, that’s why the price of homes has increased so much.

The Anderson team is supposed to be neutral. Kleinhenz’s essentially paid by the real estate industry to make projections about the market. It’s perhaps understandable, then, that he’s bound to look at today’s real estate market and see a glass half full.

In an unapologetically upbeat presentation to the San Diego Association of Realtors on Wednesday, Kleinhenz sought to portray a market that’s smoothly returning to normal, where home sales will level off and home values will skip happily upwards.

Indeed, Kleinhenz even said the record-high inventory of homes on the market in the region is a good thing for sellers. Though it may take a seller longer to offload their home, he said in an interview after his presentation, at least they know there are other houses they can choose to buy.

“A couple of years ago, what happened was inventories were so low that sellers got cold feet because they figured that if they sold their home, they would have a hard time finding another home to buy,” Kleinhenz said.

That’s a novel take on San Diego’s swelling home inventory, which on Saturday surpassed its previous record of 19,250 homes listed for sale and, by Wednesday afternoon, had gone up to 19,344, according to ZIP Realty, a California real estate information service.

Kleinhenz acknowledged some potential risks to the housing market that could lead to home value decreases, but cited some pretty healthy economic signs as evidence for his take on the real estate debate.

Interest-only loans and other creative financing vehicles are a concern if they’re not used wisely, Kleinhenz said. A rise in foreclosure rates could lead to a flood of homes and desperate sellers to the market, which in turn could push prices down, he cautioned. But, despite their recent popularity, these higher-risk loans represent a small percentage of the total home loans out there, he said, and therefore shouldn’t pose too much of a threat to the market.

Similarly, Kleinhenz shrugged off concerns about investors who seem to be losing faith on real estate as an investment. Last year, about 10 percent of homes sold in California were sold as investment properties, and Kleinhenz admitted that, if the number of investment purchases halved, the effect on the market would not be inconsequential.

However, he said, that’s not likely to happen because real estate remains a robust investment. Even if it did happen, he said, it would merely slow home price appreciation, not lead to price decreases.

If there’s one thing that does trouble Kleinhenz about San Diego, it’s downtown.

The cavernous hall in the San Diego Convention Center in which Kleinhenz, made his speech doesn’t have a view over the dozens of condo towers and cranes in downtown. That’s perhaps lucky for the economist, who wasn’t pushed to make public his predictions for the 92101 ZIP code. But in the interview later, he agreed that the condo market troubles him.

The spread of condos in downtown San Diego is similar to what’s happening in his home town of Long Beach, Kleinhenz said.

“We’ve got lots of condos, and I’m not quite sure who will be buying those,” he said.

Told of the current high inventory levels in downtown San Diego and the thousands of condos that are planned for the city, Kleinhenz said what happens downtown will depend on when the properties come on the market and whether there is a sudden flood of condos coming online at the same time.

Countywide, and statewide, the real estate market is in healthy form, if not quite as healthy as last year, Kleinhenz stressed. Though sales have been slow to pick up in early 2006, he said, the sales figures for March show that the industry’s making a bit of a rebound. As long as interest rates stay at reasonable levels and the economy keeps plodding along, there’s no reason for local homeowners to be concerned, he said.

“This is what I’m terming a Goldilocks economy,” he said. “It’s one that’s growing not too fast, not too slow, but just right.”

A Goldilocks economy it may well be, but, like Goldilocks, the real estate market has relied on the absence of bears in the economy for its survival. If the bears come home, even Kleinhenz admitted it could be in hot water.

Please contact Will Carless directly at will.carless@voiceofsandiego.org with your thoughts, ideas, personal stories or tips.

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