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BEVERLY HILLS, CA-California's housing market may soon start to level off, according to real estate experts at the Milken Institute's State of the State Conference 2005. The one-day conference was held at the Beverly Hilton Hotel and attended by approximately 500 people. Lewis Feldman, senior partner with Pillsbury Winthrop Shaw Pittman LLP, moderated the first panel of the day entitled, "California's Housing Market: How Much 'Froth' is Out There?" The one-hour session discussed the slowing market fundamentals and what the future holds for the state's housing market. The panelists included professor Delores Conway, director of the University of Southern California's Casden Real Estate Economics Forecast; Emile Haddad, president of Lennar Corp.'s western region; Angelo Mozilo, chairman and CEO of Countrywide Financial Corp.; and Mark Zandi, chief economist and co-founder of Economy.com.The panelists agreed that the state's housing market is showing signs of cooling but will likely avoid the much-feared hard crash. Mozilo said that he would like to see some leveling off to close the gap between housing prices and income. He noted that he has seen a slight drop in prices and demand, saying that there is no longer such "a fervent desire to own. In just the last few months, I've seen that intense desire begin to level off," Mozilo said.Conway agreed with the assessment, saying that the data compiled by the Lusk Center indicates "a soft landing" for the housing market. The greatest risk lies with buyers, who have taken out interest-only mortgages. Mozilo followed up by saying while there is nothing wrong with those types of loans, he's witnessed "abusive sales of them to individuals" that lack the credit to weather the riskier financial packages.Zandi opined that the homes in the Southland are overpriced by 10% to 20% and the trigger to the flattening of the market will be rising interest rates. He also noted that the increase of interest rates over a shorter period of time would have more of an impact on the market than a slow and steady increase. One trend noted is the relocation of residents and employers from coastal areas out of state and outlying areas. California has seen tremendous job growth in the Inland Empire and Central Valley, with residents following, seeking affordable housing. But in some cases, employers have moved out of the state because, as Mozilo put it, California has an "unfriendly business climate." He added that his company has moved 20,000 jobs to Arizona and Texas. "Unfortunately, we will continue to move jobs to those states," Mozilo said.Another topic touched upon was the increase of construction costs, such as timber and steel, which have been passed onto the homebuyer. The prices have soared 30% in the last year, according to Conway and may cause investors to abandon projects. Mozilo noted that the condo market would most likely be hit with price flattening. The problem being there is an abundance of condo conversions and simultaneous ground-up condo construction. The panel noted that unlike the condo bust of the 1990s, in general California's supply and demand is well balanced. Conway said the exception to this is the massive overbuilding in the Inland Empire. "We are seeing speculative development supply exceeding demand," she said.