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Real Estate / County Is Expected to Resist Slump of U.S. Building Industry in '88

OUTLOOK '88; Third of a series exploring the outlook for county businesses and the economy next year.

December 29, 1987|MICHAEL FLAGG | Times Staff Writer

Experts forecast a slowdown in 1988 for real estate nationwide, but they say the industry will probably slow a little less in Orange County. One estimate, that of Chapman College's Center for Economic Research, predicts that local building activity will drop about 6% next year.

In home sales, the county "is coming off a period of hyperactivity over the last two years," said Ken Agid of the Marketing Department, a consulting firm. "Next year we'll see a more normal market."

And while the Construction Industry Research Board forecasts as much as a 14% reduction in office construction statewide next year, local experts say construction will not falter much in most of the county.

"And the demand for offices will actually be up a bit," said Robert Dunham, president of Newport Economics Group.

What does all this mean to the average person?

In housing, there is some disagreement over whether more houses and condominiums will be built next year. Experts such as Al Gobar of Alfred Gobar Associates say developers will scramble to throw up more houses before a slow-growth initiative comes before voters next year.

Whichever way home construction goes, the price of a home--which has been increasing rapidly--should rise at a somewhat slower rate next year. That's because the smaller pool of buyers who can afford the county's high housing prices may be further depleted by late next year.

But the average single-family home is likely to remain beyond the reach of more than two-thirds of the county's residents.

Excluding new homes, the median price of all houses sold in the county hit $176,595 in November. That surpassed even San Francisco, usually the most expensive housing market in the state, and raises questions about how the county is going to house its burgeoning population.

Those high prices are unlikely to drop soon, either, because land in the county is becoming scarce and expensive. That means the houses, too, are becoming more expensive.

"There are very few new single-family homes coming on the market for less than $200,000," said Jeff Meyers of the Meyers Group, a consulting firm.

As the middle class flees high prices in the county, builders are following them to Riverside and San Bernardino counties, where cheaper land means cheaper homes are available.

So who's left in the county to buy homes? Many of the buyers are older, more affluent people using the equity in their old homes to buy bigger houses: the "move-up" market, as builders call it.

So strong is the county's economy that those people bought just about everything the builders put up this year.

"And the home builders have scrambled all over each other trying to see how high priced they can make their housing," Gobar said.

At one point this summer, the supply of new homes for sale in the county reached its lowest point in 11 years, according to consultant Vic Cooper of the Marketing Department.

But that's expected to change next year: Sales of new and older homes are likely to slow in the county. So are sales in the state and nation.

The California Assn. of Realtors has projected sales of older houses statewide to be down 10% this year. And chief economist Joel Singer said he sees no reason why Orange County should be different from the statewide picture, unless sales drop even more here.

"The county has very expensive housing, and so it really depends heavily on only one kind of market, the trade-up market," Singer said.

The reasons for next year's anticipated drop in sales: A slightly slower state economy, consumers' declining confidence in the national economy in reaction to the stock market collapse and a realization by buyers that houses in the lower price ranges simply won't be available, particularly in places such as Orange County.

Because of this anticipated slowdown, "home prices in Orange County will continue to go up next year but at a slower pace," marketing consultant Agid said.

Meanwhile, there are several views about the supply side of the equation: Will builders put up more homes in the county than they did in 1987?

Permits for an estimated 9,300 single-family homes were issued by local governments in the county this year, according to the Construction Industry Research Board, down from 9,800 last year. Condominiums and apartments were up from 15,100 last year to 16,200.

Gobar and others, such as accounting and consulting firm Kenneth Leventhal & Co., think the number of new housing units will go up as builders race against the slow-growth initiative. Developers have already locked in some of their bigger projects in so-called "developer agreements" with the county; it is unclear how much the initiative--if it passes--would affect those agreements.

On the other side of the fence, the Chapman College Center for Economic Research's annual forecast projects housing construction will drop again next year, falling about 8%.

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