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COMMERCIAL REAL ESTATE

Housing Sector to Stay Healthy, Experts Say

Forecast: Demand for homes, apartments should rise, despite fears of a slowing economy. Inland, rather than coastal, areas will see more activity.

November 17, 1998|JESUS SANCHEZ | TIMES STAFF WRITER

Despite the prospect of a slowing economy, Southern California's housing market is expected to remain relatively healthy as demand for homes and apartments continues to rise and new construction fails to keep up, real estate experts said Monday.

"Southern California's residential real estate fundamentals look solid," said Joe Mattey, senior economist for the Federal Reserve Bank of San Francisco, during his presentation at the Annual Apartment & Housing Conference in Century City.

However, few at the conference said they expect a repeat of this year's record-breaking sales activity and price appreciation. Rather, many said that housing sales and apartment construction activity should slow next year and that prices will keep rising, but at a more modest pace.

"It's slower . . . but it's still pretty darned good," said Los Angeles real estate broker Fred Sands, whose company's sale volume this year will be the highest ever.

Real estate activity shifted into lower gear last summer as the Asian financial crises spread to Wall Street. Many deals and developments have been delayed or canceled as credit became tighter and real estate investment trusts pulled back from their buying spree. As a result, the sharp appreciation in home values, rents and land prices that characterized the early part of the year dropped off as buyers' concern about the economy made them more conservative.

"I don't see the drivers to push [building] lot prices even higher," said Carl Neuss, a Southern California real estate developer and investor. "I would not be surprised if those prices eased up a bit in [pricey] coastal areas."

Such a shift in the real estate market will mean a shift in strategy for builders and owners.

For the apartment industry, it means that there will be less emphasis on buying and building new properties and more on how to boost profits from existing portfolios, said Caroline S. Latham, chief executive of RealFacts, a real estate consulting firm.

"The number of transactions is going down," Latham said. "About one-third of planned developments won't be built."

The focus of most real estate sales and development activity is expected to move further inland and away from coastal Los Angeles, Orange and San Diego counties, where sharp price increases and a shortage of buildable land has locked out many builders and home buyers. Communities in western Riverside and San Bernardino counties and in northern Los Angeles County should see a surge in buyers and development that were once concentrated along the coast.

"We will continue to see good, strong activity in those locations," said Nicholas Pappas, president of home builder K. Hovnanian of California.

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