Affordability Is Still the Big Question : Housing: The S&L; disaster has done little to disturb the Southern California market. In any case, there’s little relief for the first-time buyer.

Almost every week brings news of another failing savings and loan institution. At the same time, Californians are hearing dire predictions about the pending collapse of the housing market. Is there a connection?

True, housing prices are falling. But not by much. According to the California Assn. of Realtors, median home sales prices were up 16.6% in 1989 over 1988. They fell, however, from a peak of $202,650 last July to $188,477 in December. Part of this drop is seasonal. Part is explained by a shift in the composition of sales. Smaller, less-expensive homes command a greater proportion of total sales, and proportionately more activity is occurring in less-expensive areas such as the Inland Empire parts of Riverside and San Bernardino counties.

Another reason, according to Joe Wahed, chief economist for Wells Fargo Bank, is that the market is going through a normal correction period caused by speculative fever in 1988-89.

Prices during that period far surpassed growth in household incomes, so it was inevitable that double-digit increases would eventually have to slow down. Fewer people can afford the higher prices, so demand appears to be dropping.

While demand at the new price level is lower, the supply of new homes has also been lower. Lower supply keeps housing prices from falling as much as they have in other parts of the country, where new housing production has been higher. The slow-growth movement also has helped to keep new housing production down and housing prices up. While the constraints on new housing have contributed to the rapid escalation in housing prices (and even-worse housing affordability), it has come to the aid of homeowners who are concerned about falling house prices.

Because the recent drop in housing prices, however small, comes at a time when S&L; closings are regularly in the news, many people are wondering if mortgage money is also drying up.

The short, unequivocal answer is “no.” There is plenty of mortgage money available from a variety of sources including commercial banks, mortgage brokers, insurance companies and surviving S&Ls.; If anything, the plentiful availability of mortgage money from other sources has helped to hasten the collapse of the S&L; industry, rather than the other way around.

Even though there may be plenty of mortgage money overall, are certain groups of borrowers being affected? The answer again is “no.” However, there has been a tightening of credit requirements by lenders. For many would-be buyers, the effect of the tighter regulation is a reduction in the amount they can borrow.

Thus, while the S&L; closings have little impact on mortgage availability, the S&L; crisis and the resulting regulations to prevent it from happening again just might. If people can borrow less money with the same amount of income, then they can afford less for a home. Still, regulations are tighter only for certain types of mortgages, so the impact is minor.

There is another area in which S&L; closings may also affect prices, causing them to rise rather than fall. S&Ls; have been one of the primary sources of equity and joint-venture capital for developers of new subdivisions. Their withdrawal from the market makes it much harder for small developers to obtain financing. Small builders and developers provide competitive pressure on larger builders, helping to raise supply and lower prices. With fewer small builders in the market, larger builders will face less competition and prices will likely rise faster than they otherwise would have.

The present slowdown would appear to offer better opportunities to buy housing than we have seen in the last three years and are likely to see in the future. Unfortunately it will offer little relief to those who are more concerned about buying their first home than financing their next.