With fixed-rate home loans still available at their lowest levels in about eight years, real estate brokers here and across the nation see home prices rising quickly to higher levels.
As low mortgage rates lead to increased sales, the end result will be a sizable appreciation in home values--as much as 20% between now and 1990.
Realtors' natural optimism may have much to do with that prediction but it comes from a fresh, nationwide poll of more than 400 independent and franchise brokers.
Conducted by Opinion Research Inc. of St. Louis for the nation's second largest real estate franchiser, Kansas-based Electronic Realty Associates, the poll included leading brokers and state presidents of National Assn. of Realtor affiliate groups, all representing "a core of opinion leaders."
The Los Angeles area homeowner, whose dwelling now bears an average selling price of $143,500, would find that home worth $172,700 in four years--if those seers are correct. Meanwhile, the pollsters point out, the national average of a resale home has already climbed from last year's $93,100 figure to the current average of $98,600.
Edward Gresham, president of Electronic Realty, is even willing to go beyond the poll's forecast.
Describing present sales activities as probably "the hottest residential real estate market since the 1970s," he adds:
"With mortgage rates dipping below 10% for the first time . . . there is every reason to expect that the brokers' predictions will prove to be conservative. Values are up, sales are up and lower interest rates can only serve to fuel the fire. . . . "
The brokers estimate that home values rose by 46% nationally between 1980 and 1985, and they expect the trend to continue through the remainder of this decade.
Gresham explained that a significant increase in home prices started after interest rates began to fall from their high levels in 1982-83.
As almost always, homeowners inflate the value of their own dwellings, and that was not surprising to the poll participants who found that owners placed their price tags, on average, about $5,000 to $10,000 above appraised values.
But in Los Angeles, of course, the range was greater--$10,000 to $15,000 over appraised prices. Gresham said such higher estimates relate to the higher overall property values. "A $15,000 over-estimate on a $140,000 house is comparable to a $10,000 over-estimate on a $98,000 house."
At the consumer end of the market, the poll found that would-be home buyers can expect a discount of less than 10% off the list price.
"The poll shows we've not only got smart sellers who seem to know the market values of homes today, it also gives home buyers a yardstick to help them become more knowledgeable about what they'll have to pay," Gresham said.
While the poll indicated that the existing, average American home eventually sells for 7.3% below the asking price, it's 9% in Los Angeles and 4.4% in San Francisco.
A small but significant finding in the poll involved a shift--by a 1% margin--for the primary reason given for failing to qualify for a home loan.
In earlier polls, inability to meet monthly payments was the primary trouble spot. In this survey, the biggest stumbling block was inability to meet the down payment requirement.
Among would-be buyers who do not qualify now, "inability to meet the down payment" was the principal reason given by 24% of the brokers. Next, 23% of the respondents said, was "inability to meet monthly payments;" 18% listed "inability to document credit," while 20% said a combination of all those factors were involved.
"That earlier situation was a reflection of high interest rates which translated into large monthly payments that many people could not afford. Today, lenders have tightened the reins by raising the required down payment, a situation 73% of the brokers seem to think is not going to change soon," Gresham added. In the matter of location of homes, potential buyers throughout the nation told brokers, they (50%) prefer to settle farther away from the center of town; about 28% preferred close-in homes, while for all the others, it didn't matter.
Los Angeles brokers reported that 40% of their customers want suburban living, 25% have in-town choices, and of the remainder, 30% apparently have no clear preferences.
As to gasoline prices and distances between work and home having an impact on home purchases, they apparently do not.
"What this tells us is that the cost of commuting is not the key factor in people's decisions about where to live. High gasoline prices . . . didn't seem to deter suburban development, nor do the lower prices we've seen this spring seem to be sparking a rush to the outskirts of a community."