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Bank Leader Predicts Mixed Economy Ahead

September 28, 1986|ED GOLDMAN | Special to The Times

SAN FRANCISCO — The message was mixed at the recent "1987 Real Estate Economic Forecast" seminar here:

Good times, with an average of 3% economic growth nationwide, are ahead. But the overbuilding of office space in the last few years will continue to impede the recovery of commercial real estate.

Businesses also are expected to spend more on inventory building, which, likely, will stimulate production and the economy. However, "imminent passage of (the tax reform package) has already begun to discourage new multifamily construction."

Those views were offered by keynote speaker Robert T. Parry, president of the Federal Reserve Bank of San Francisco.

Scholarship Funds

The event was sponsored by the California Building Industry Assn.'s Foundation--which, according to Renee McGovern, the conference coordinator and foundation's executive director, will use a portion of the day's proceeds to fund the 25 annual $1,000-college scholarships it provides to students intending to pursue careers in the industry.

"Recently, economic growth in the United States has slowed," Parry said. "I think this has raised concern that the current economic expansion is coming to an end."

Telling Bad News

Then Parry told the group more bad news.

"Since February of last year," he said, "the international value of the dollar has declined by approximately 35 percentage points. What this should do is stimulate exports because our goods in international markets should be cheaper. This should curb imports because the goods that we purchase from overseas will have a higher price tag.

"Unfortunately, we have not seen a turnaround in this deficit in our trade accounts."

Then he offered some good news: The decline in interest rates "is stimulating consumer purchases of durables and especially housing. I conclude that the economy is beginning to pick up, and that growth will average about 3% between now and the end of next year."

Parry said that while the decline in mortgage rates has stimulated construction of single-family homes--1.2 million units are expected to be built by the end of 1987--"imminent passage of (the federal tax reform package) has already begun to discourage new multifamily construction.

"Implementation of the proposed changes in the tax treatment of investment property could depress multifamily (housing) starts 15% to 20% below last year's rate of 574,000 starts."

Predicts ARMs Decline

At an afternoon panel on financing, William C. Ardizoia, vice president and treasurer of Citicorp Savings in Oakland, predicted that of the current $250 billion of adjustable rate mortgages, "only $125 billion to $150 billion will remain on (savings and loan institutions') books by 1990."

Ardizoia also pointed to the growing trend of conglomerates, such as Metropolitan Life, Sears, American Can and the Ford Motor companies to become originators of new mortgages, saying that Sears hopes to capture 5% of the mortgage insurance market, nationally, within the next 3 1/2 years.

Goldman is a Sacramento-based free-lance writer.

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