Home Prices to Continue Rise, Economists Say : Moderation From 1988 Rate Predicted

The galloping inflation in California home prices--which ran 18.4% in 1988--should slow somewhat this year, economists said Tuesday.

However, home prices likely will increase faster than the overall inflation rate because the forces driving the 3-year housing price spiral haven’t changed, the experts said.

“I don’t believe we can sustain these rates,” said Michael Carney, executive director of the Real Estate Research Council of Southern California.

Carney estimated that the housing price inflation rate would ease just slightly, to 15%, in 1989, and projections of other experts ranged from there to as low as 10%.

Resale prices for single-family homes rose 18.4% last year, according to the California Assn. of Realtors. The statewide median price for an existing home climbed to $165,602 in 1988, up from $139,821 a year earlier.

In the big cities and in desirable coastal cities and inland suburbs, prices rose much more than the average.

Nationwide, the median sales price of an existing single-family home was $89,100. The median is the price at which half the homes sell for more and half are cheaper.

Despite soaring prices, a buying frenzy kept California sales strong, with more existing homes changing hands than in any year since 1979, the realty group said. The association counted 562,759 sales of existing single-family homes in 1988, up 9.8% from 512,447 a year earlier.

The median price of a California condominium in 1988 was $122,750, up 9.3% from $112,280 a year earlier.

Economists expect little change in the factors driving up home prices: continued migration to California from other states and overseas, and a supply squeeze brought on by restrictions on building, both in the form of longstanding zoning rules and the new slow-growth movement.

“There’s no other place in the country, to my knowledge, that has such rigorous growth controls,” said Phillip Vincent, vice president and economist at First Interstate Bank in Los Angeles.

Vincent, who, unlike others, blames speculation by investors for some of the price rises, estimated that home prices would climb about 10% in 1989.

California’s growth rate is expected to slow somewhat in the coming year, along with the rate for the rest of the nation, and that should dampen the demand that is driving up home prices, predicted Randall Pozdena, assistant vice president at the Federal Reserve office in San Francisco.

Interest rates have started to climb, and that, too, should slow housing demand, said Pozdena, who predicted that home prices would rise 9.5% to 10% in 1989.

Housing prices will continue rising through the first half of this year, then ease in the second half, for an annual rise of about 14.5%, said David Hensley, director of forecasting for the UCLA Business Forecast.

UCLA’s forecast calls for a mild recession beginning the in third quarter, and that would necessarily cut home prices, Hensley said.

Home prices as measured by the real estate association have been climbing faster than the overall inflation rate for 3 years, up 11.5% in 1986, 6.3% in 1987 and the startling 18.4% jump last year.

An independent tally by Carney’s Real Estate Research Council, based on twice-yearly appraisals of selected homes, found in October that prices in the 7-county Southern California region rose 21% in 12 months.

The Real Estate Research Council of Northern California’s October survey of the 9-county San Francisco Bay Area found prices up 18.9% in the previous 12 months.