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Rate Cuts Likely to Give Boost to Real Estate

Housing: Analysts are cautiously optimistic that the Fed's action will spur buying.


Already showing signs of recovery, the California housing market is certain to benefit from the Federal Reserve's interest-rate cut on Wednesday, but economists and real estate agents caution that they are not expecting any dramatic or immediate results.

"The magnitude of the [rate cut] will be modest because there are other factors involved that are still adversely affecting the California economy," said economist Chris Taylor at Wells Fargo Bank, referring to shaky consumer confidence and an anticipated decline in the state's job growth.

Still, the Fed's quarter of a percentage point reduction in the discount and federal funds rates to 5% and 5.25%, respectively, follows a similar reduction last July, and many economists expected yet more reductions this year. Mortgage rates have also been sliding down for the past year.

"Just one quarter-percent drop might not do much for the housing market," said Esmael Adibi, director of the Center for Economic Research at Chapman University. "But if rates continue to decline through '96, we think it will improve housing affordability significantly."

Wednesday's rate cuts will lead many potential buyers to finally make a deal, said Randall Lewis, executive vice president of Upland-based home builder Lewis Homes. "All the indications are that we are off to a good start this year and this will make it better," said Lewis. The reduction in rates comes as California has seen its economy begin to grow at a faster clip, creating jobs and attracting newcomers into the state. Those factors have proved much more important in determining whether people are ready to buy a home, say brokers.

"Interest rates have not been enough to change people's perception of where the market is headed," said agent Roland Wilhelm at Jim Dickson Realtors in Pasadena, adding that interest rates "seem to be of secondary importance." Wilhelm noted that many buyers are not waiting for rates to fall further. His firm's sales in January hit an all-time high for the month, and some clients received three or four offers within a week of having their properties listed. "The rates will help spur it along," he said.

An improved economy, a small rise in home values and lower rates are expected to result in a 5% rise in home sales this year, compared to a 12% drop in 1995, said Taylor at Wells Fargo. "There are several ingredients involved [in boosting home sales]," said Taylor. "We are only just now beginning to see most of them fall into place."

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