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Torrid Home Sale Pace Poised for Slight Cooling

January 11, 1987|DAVID W. MYERS

California's hot real estate market is expected to cool slightly this year as home sales take a breather from last year's torrid pace, and construction of apartments and office projects drops sharply.

Experts say home prices in the state should rise about 6% this year--almost twice the expected inflation rate, but less than the 9% increase posted in 1986.

"This is going to be another good year for home resales, but I just can't see it topping 1986," sums up Joel Singer, chief economist of the California Assn. of Realtors.

Although final numbers are still being tabulated, Singer says about 470,000 existing single-family homes were sold in California last year--the highest sales level since 1979.

Mortgage-Rate Outlook

But much of the pent-up demand from the high-interest days of the early '80s has been satisfied, so the economist expects sales to ease about 7% this year to 435,000.

The modest drop will come despite further declines in mortgage rates, Singer and most other economists say. The consensus calls for rates on fixed-rate, 30-year mortgages to fall to between 8 1/2% and 9% from about 9 1/2% today. Initial rates on adjustable loans could drop as low as 6% from about 7 3/4% today.

The benefits of the lower rates, however, could be wiped out by higher home prices. If Singer's predictions are correct, the median price of a single-family home in California will rise to about $140,000 this year from $131,000 in 1986.

While sales in the Southland are expected to be particularly brisk, certain areas of the state will continue wrestling with their own unique, ongoing problems.

Legislation Lags

In the Bakersfield area--where homes sales and prices have been depressed because of layoffs in the slumping energy industry--residents hope the recent upturn in the oil business will put more people back to work.

In the San Francisco Bay Area, where the median price of a home is more than $160,000 and rising steadily, the affordability crisis is expected to become even more severe.

Unfortunately, political observers say the New Year holds little promise that local and state legislators will do much to ease the affordability problems plaguing most areas of the state, although it's a topic to which they'll undoubtedly continue to pay much lip service.

Nor are they expected to make a significant amount of headway in housing California's growing number of homeless people--a group that is believed to already number more than 30,000.

Bond Sale Restrictions

Cutbacks in federal aid, coupled with restrictions that the new tax law places on bond sales used to build or buy affordable housing, will make the task of providing decent shelter at a reasonable price even more difficult.

Nationwide, sales of existing single-family homes are expected to rise 2% this year to 3.6 million units from an estimated 3.5 million in 1986. Softness in states with economies closely tied to the slumping energy and agricultural industries will be offset by the strength of sales in the Southwest and Northeast, NAR economists said.

Builders of single-family homes will almost be as active this year as they were in 1986. The National Assn. of Home Builders predicts that 1.12 million houses will be built in the United States over the next 12 months, down slightly from the 1.18 million built last year.

California's builders will be among the busiest in the nation. The NAHB says 148,000 single-family houses will be built in the state this year, a 10% increase over the 135,000 built in 1986.

Expects New Record

Golden State builders confirm the NAHB's optimism.

"We expect another record-breaking year in 1987," says Bruce Karatz, president and chief executive of Los Angeles-based Kaufman & Broad Inc.'s home-building subsidiary.

Karatz expects his firm will deliver more than 5,000 homes this year, compared to about 4,300 in 1986. If that goal is attained, it'll be the fifth consecutive year in which production--as well as revenue and profits--shattered company records, the executive said.

The outlook for builders of apartments, however, isn't nearly as bright. Only 336,000 new apartment units are expected to be built in the U. S. this year, compared to 463,000 in 1986. The projected 27% drop stems from overbuilding in most cities, plus the fact that tax reform has scaled back or eliminated many of the tax breaks developers had enjoyed.

"It's the loss of tax benefits that hurts the most," says Robert Villanueva, the NAHB's director of forecasting. He says a 21% drop in apartment construction in California will offset the increase in new single-family homes, pushing total housing starts in the state down 6% this year to 262,000 units from 279,000 in 1986.

Outlook for Renters

Real estate experts disagree over how renters will be affected by the changes confronting apartment builders and owners. One side believes rents will rise by 10% or more over each of the next few years, as landlords try to make up for lost tax breaks.

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