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Economists See Sunny Building Outlook : NAHB Panelists Predict Good Performance During 1985

April 21, 1985|RUTH RYON | Times Staff Writer

Sunny with scattered clouds and a chance of light rain.

Sounds like a weather forecast, but it's an economic prognosis for the real estate industry in California and the nation.

And, surprise of surprises, it's a prognosis espoused by more than one economist, observed Joseph Humphrey, vice president/chief economist of the Federal Home Loan Bank of San Francisco and the last of eight panelists at a daylong conference sponsored by the Economics Division, National Assn. of Home Builders, at the Hotel Queen Mary in Long Beach.

Humphrey and several other economists preceding him on the program--"the first of its kind to be held in California by the National Assn. of Home Builders"--all painted a rose-tinted picture for construction during 1985.

"Basically, it will be a very good year, off from last year, but not all that bad," Humphrey predicted.

Robert T. Parry, executive vice president/chief economist of Security Pacific National Bank in Los Angeles, told the more than 100 attendees that 1984 was "an excellent year for the U. S. economy" with the "strongest real-growth rate--6.8%--since 1951."

Parry doesn't expect the growth rate to exceed 3% this year but stressed that it will still be "a good economic performance, especially for the third year of economic expansion (since the recession) and compared with other industrialized nations." He expects the economy to be even stronger in the West than in the rest of the country and California "to exceed the rest of the nation by one to two full percentage points."

Ben Bartolotto, director of the Construction Industry Research Board in Burbank, said, "Significantly, in 1984, California regained its position as the nation's leading housing producer." The state last held that position in 1979. However, Bartolotto and Kenneth Rosen, professor of economics at UC Berkeley, both mentioned the possibility of overbuilding in San Diego, and Michael Sumichrast, senior staff vice president and chief economist of the National Assn. of Home Builders, referred to that when he said:

"California is unique. You tend to overbuild. You have the biggest buildings in the country, but the state has its attractions, and it will continue to be strong. California has a long way to go before it falls into the ocean."

Parry expects that interest rates will "remain relatively flat" and called his outlook for California and the rest of the country "very favorable for housing," although he estimated that national housing starts will drop slightly from 1.8 million units this year to just under 1.7 million in 1986.

"There is no reason to fear a recession until at least after the first part of 1986," he added.

Whenever it comes, and its coming was considered to be inevitable, the next recession will be milder than the last, most of the panelists agreed.

"It will also be shorter than in the past," Leonard Santow, partner of Griggs & Santow in New York, predicted. "My own feeling is that during the second half of '86 or the first part of '87, we'll slip back into a mini-recession." At the same time, he added, "this deficit problem won't go away," but he doesn't expect Congress to take much action to solve it until 1987 or 1988.

Among the other clouds on the economic horizon are the federal tax reform proposals, which Mary Streit, managing partner of the Los Angeles tax department, Kenneth Leventhal & Co., described, saying, "There has been apprehension and confusion in the business community because the proposals would change the tax consequences of almost any transaction, and nobody knows what will become law."

The proposals immediately slowed sales of syndications and second-home sales, she added, but she expects the final package to be one "we will learn to live with," though she warned that if the investment tax credit is repealed for restorations, "commercial construction may be substantially impacted" and "a new style of syndication is mandated with a higher cash-flow yield basis needed."

Sumichrast mentioned concern about a proposed increase in the user fee for VA mortgages, and he and Gopal Ahluwalia, assistant staff vice president and director of research for the National Assn. of Home Builders, both expressed worry about recent changes involving financial institutions.

"My guess is that two-thirds of the savings and loans in the country are technically bankrupt," Sumichrast said. Later, however, Humphrey took issue with the remark, saying, "I really disagree except in the most technical of senses that two-thirds are insolvent. The industry is paying its bills when due, and some S&Ls are very well capitalized."

Dale Stuard, a Newport Beach builder and vice president/secretary of the National Assn. of Home Builders, was conference moderator, and he summed up the program from a builder's point of view, saying, among other things:

--"Builders should be careful building for the second-home buyer or investing in equities;

--"Buyers are buying for different reasons than appreciation now . . . so we need to be good marketers, and

--"There are still some first-time home buyers around, but that will change as the '80s phase out. Then there will be a demand for more expensive, larger homes with more quality. That means we will have pretty secure buyers. We'll also have a large elderly market that will need a whole new set of delivery systems."

One thing that wasn't mentioned much, he said, was the impact on home building by recent immigrants. "Over 50% of Los Angeles is non-Caucasian now," he said, and their housing desires and needs may vary from what has been traditionally built. "So we must learn to market differently than in the past," he noted.

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