Prime Rate Increase Signals Real Estate Slowdown : Dick Turpin
The half-percent increase last week in the prime lending rate to 10.5% looks very much like a signal for a customary cyclical turn in the real estate industry.
Bolstered most of this year by near-10% interest rates for conventional 30-year mortgages and two points less for adjustable rate mortgages, the vital housing arm of the national economy has been highly active, particularly in California.
Sales of new and existing homes have maintained the robust pace of the last three years while forecasts for 1989 are for stabilization and some tapering off of activity, along with an increase in resale home prices.
While two thirds of new homes today are purchased by move-up households, who have equity as a nice cushion, price increases and higher interest rates will tend to further stifle housing affordability.
Much of the active pace of selling here since last spring has been related to the public perception that growth controls would eventualy determine when and where homes would be built and in effect, putting the “better buy now” rule in force.
Growth control advocates, using traffic control as a key ingredient in their battle to slow down construction, lost ground in the November elections. Some observers feel that the heated issue may have even peaked, but an election summary by the Ventura-based California Planning Development Report points out that although many slow growth issues on city ballots were approved, county measures didn’t fare as well and that the movement to control growth is far from over.
The report noted that Riverside County voters turned away a growth-management plan and another related measure but that before the election, more than 100,000 units of housing had been “grandfathered”--allowed for future development--by action of the county Board of Supervisors.
Results in Orange County were mixed. In October, a Superior Court judge rejected a growth-control measure that was approved by San Clemente voters last June. But in November, identical initiatives were approved in San Juan Capistrano and Costa Mesa--winning there by a margin of only 140 votes out of 30,000--and defeated in Huntington Beach. Costa Mesans also rejected plans of the C.J. Segerstrom family to develop a ranch property.
San Diego county voters rejected two measures, one county-supported, the other citizen-supported. But the same voters approved creation of a regional planning body to coordinate growth-management plans.
On city ballots, San Diegans also defeated two initiatives, one city-backed, the other citizen-backed. Each measure contained stringent cutbacks on residential growth.
One positive note in the wake of the elections: City and county officials hope to cooperate in the future in all planning matters.
In Poway, voters approved a measure calling for voter approval for projects involving increases in housing density but defeated a city council measure, while in Chula Vista, an initiative tying development to provision of services, was approved.
Meanwhile, the strong slow-growth attitude in Santa Cruz County prevailed overwhelmingly on two issues calling for controls on the growth of UC Santa Cruz.
William Fulton, editor/publisher of the report, believes that the grass-roots of California contain a lot more fuel for the growth issues and that while many key issues were defeated, the war isn’t over yet.
But the impact of this continuing battle will certainly determine how much “growth” the voters will allow and how it will affect housing affordability and availability.
