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State Stung by Slump in Housing : Everyone from homeowners to carpenters to builders is feeling the pinch.

December 02, 1990|TOM FURLONG | TIMES STAFF WRITER

Mayo Gonzales' biggest fear since losing his job as a carpenter two months ago is not the money (his wife works) or the kids (they're grown) but the loss of his health-care insurance.

If he does not work 250 hours in the final three months of 1990--an unlikely prospect now--Gonzales stands to lose his union health benefits, leaving him vulnerable to horrendous medical bills in case of a serious illness or accident.

"That's what worries me more than anything else," said the 57-year-old Ontario resident who has toiled in construction for 32 years.

Gonzales has plenty of fellow worriers. The slowdown in California's housing industry, which has worsened markedly in recent months, is sending spasms of fear and alarm through virtually every corner of the state's real estate market.

From carpenters and interior decorators to architects and homeowners, it has hit a broad cross-section of California's population and has now virtually enveloped the entire state. Building layoffs are rising, residential property values are falling and new-home construction is plunging.

The real estate downturn has developers scrambling to survive and experts worried about possible major damage to the rest of the economy. Widespread layoffs in the defense industry, another pillar of the California economy, only worsen matters.

The slump in housing has been particularly traumatic in a state where real estate occupies a special niche in the economy and where skyrocketing property values in past decades have turned many middle-income homeowners into a new class of landed privilege.

"You just identify California with real estate," said David Hensley, acting director of business forecasting at UCLA. A typical California house once cost more than $200,000, double the national average, but median resale prices have been dropping for several months. It's a market whose financial health is measured primary by construction, sales and prices. New construction is especially important for the economy because of the jobs it creates in related fields.

As home sales have fallen sharply this year, more than 50,000 fewer houses have been built. That has led to steep layoffs in related businesses and a decline in housing prices, which had been rising sharply until the middle of last year. So far, median resale prices in California have fallen about 5% from last year, while new-home prices have been slashed up to 25%.

The drop in home values has forced property owners to tighten their belts and hold spending down. "If there is deflation of their primary asset, then it's going to affect how much they spend on other big-ticket items," said Sanford Goodkin, a real estate consultant in the San Diego office of KPMG Peat Marwick.

Most experts believe that the problems will worsen next year before a recovery begins. The slide has accelerated in recent weeks due to consumer uncertainty about the economy and possible war in the Middle East.

"People are . . . nervous," said Carole Eichen, a well-known interior decorator in Orange County. "They don't know what the hell to do."

Prudential-Bache Securities recently predicted that California housing prices could fall 25% or more by the end of 1991 from their peak in mid-1989. The price decline "could be the greatest percentage drop ever seen in the land of skyrocketing real estate values," the brokerage house said.

Such talk raises the possibility of a repeat of 1981-82, when California real estate took a terrible pounding. The construction of single-family houses in 1982 was less than a third what it was in 1989.

Property defaults have been rising since last fall in Los Angeles and Orange counties, a trend that is expected to continue, according to T. D. Service Co., a foreclosure specialist. "We see foreclosures rising 20% to 25% in the next 18 months," said Thomas Randall, a company vice president.

Some once-thriving real estate brokers and sales agents are teetering on insolvency because their commission incomes have shriveled. "Some of them haven't made a sale in months," said Scott C. Clarkson, a bankruptcy attorney in Torrance for Finer, Kim & Stearns.

One 29-year-old real estate broker in Orange County, who asked not to be identified, moved his office into his home to cut expenses because he has suffered such a steep drop in income in 1990. "I'll make about half what I made in 1989," said the broker, who lives in Costa Mesa.

Robert O. Bach arrived in California from Omaha just 18 months ago, but already he has lost two jobs in the real estate business. The latest came last month. He was one of 39 people laid off when Great Western Real Estate fired its new-home sales force in Yorba Linda.

"Looking for another job is not my favorite activity," the 39-year-old Torrance resident said.

The effects of the slowdown have even rippled beyond state boundaries to towns in the Pacific Northwest that were stampeded in the late 1980s by urban Californians seeking an escape from growing congestion and crime.

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