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Q&A : Real Estate Consultant Says Buy Now : Consultant who has watched O.C. market for decades says pent-up demand will produce a statewide housing shortfall.

May 30, 1994|DEBORA VRANA | TIMES STAFF WRITER

Orange County home sales are up nearly 35% during the first four months of this year and with the prices for houses and raw land starting to firm, real estate experts are hailing the early stages of a recovery.

Rates for fixed-rate mortgages now average more than 8% compared to around 7% a year ago, and some home buyers are wondering whether to rush in and buy a home now before rates rise further or hold off, betting that rates fall next year.

Kenneth W. Agid, founder and principal of the Marketing Department in Irvine, a real estate consulting firm to such master-planned communities as Rancho Santa Margarita and Coto de Caza, has watched the Orange County real estate market take a roller coaster ride for more than 20 years. Last week, Agid, 51, discussed the local home-buying market and made some predictions about its future health. His advice to those considering purchasing a home in Orange County: Buy now.

Q. What would you tell a potential home buyer nervously surveying the changes in our local residential real estate market, especially those concerned that the recent spike in home sales may prompt an increase in prices?

A. First thing I would say is hurry. I'm not saying they should rush into a decision without doing a thorough analysis, but I also think sitting at home and pondering a decision about whether to go out and start looking is the worst decision they could make.

It's liable to cost them $10,000 to $20,000 in the price or value of the home they will be able to acquire and the situation is not going to get any better. And the most important thing is that the housing alternatives available to them are going to be rapidly disappearing, and that's both in the resale and new-housing sector.

Q. Why do you say housing alternatives are rapidly disappearing? Lately there have been announcements about new housing projects throughout Orange County, including Centex Homes' purchase of 915 housing lots in Foothill Ranch.

A. These projects that are coming down the pike are a drop in the bucket. Everyone keeps talking about this phenomenal housing recovery in terms of how strong it is, but this is just the start and we are nowhere near approaching the capacities necessary to keep pace with market demand.

The housing industry is in the process of emerging from one of the four elements of the typical cycles impacting this industry. There are four periods in a cycle: the period of contraction, the trough, which we are just coming out of, the period of accelerated growth and the peak. We are emerging from the trough and moving into a period of accelerated demand for housing. It's probably one of the sharpest periods of upside demand that the state of California has realized in eight or nine years.

Q. Why do you predict such a strong demand for housing?

A. In addition to growing demand from new household formations and new employment this year, we're also going to be dealing with at least three or four years of pent-up demand from people who have been postponing decisions. So we're going to see increasing demand and, unlike past cycles, there is virtually no unsold inventory in the California new-housing market. In past periods of contraction, the building industry had some inventory of unsold housing to sell off.

But in this recession, unlike others, two things occurred. First, builders put down their hammers and nails in 1989 and have been loath to pick them up, mostly because of a lack of financing. The second is the engineers, the land planners and the developers put down their pencils and stopped drawing as far back as 1989, so there's been a curtailment on planning on projects, so there is going to be a bubble in the supply pipeline.

Q. So, you are predicting a statewide housing shortfall of more than 300,000 units for this year alone. How would that likely happen?

A. During the decade of the 1990s, we've been gaining households at a rate as great as 200,000 per year, while we've only been building new housing units at a rate of less than 100,000 per year. So for each of these years, there is an accumulated deficit of new-housing supply. In addition, there is a phenomenon of people doubling up in record numbers in California over the past few years. Many young people have moved back into their old homestead, so the bonus room has become the boarding room. Now, more and more of these young people will be emerging from the cocoon, and will place additional demand on the housing market.

Q. But what does this potential housing shortfall mean for this year's home buyer?

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