Realtors Hear Gloomy Price, Sales Forecasts

The weather was a fitting companion for the 3,000 California realtors who gathered in downtown Los Angeles for the start of their annual convention last Tuesday.

The skies over the Bonaventure Hotel were dark and cloudy, much like the clouds that now hang over California’s once-sizzling housing market. Most of the salespeople agreed that both the weather and business were bad, and all hoped that the sun would soon shine again across the Southland skies and home sales down below.

It has been a tough year for the 140,000 realtors doing business in California, which may explain why the crowd at the 86th annual convention of the California Assn. of Realtors seemed more sedate than in years past.

Home sales are running at a 426,805-unit annual rate, down nearly 15% from a year ago and off about 30% from their 1988 levels.

Home prices are also falling, and that too is cutting into most agents’ commissions. The median price of a home in California now stands at $194,099, down 3.1% from a year ago.

Prices are down an even steeper 5% in Los Angeles County. Values are 2.2% lower than they were a year ago in Orange County and 1.2% lower in San Diego County.

Even though prices in the Riverside/San Bernardino area are up a modest 3.6% from a year ago, that’s less than half the gains the region enjoyed in 1988 and again in ’89.

Things are likely to get worse before they get better, many realtors and other housing experts at the convention said.

“I think prices are going to keep falling in the next six to nine months,” said Burland East, a housing expert in the Los Angeles office of stock brokerage giant Bateman Eichler, Hill Richards.

“Home prices have risen much faster than the typical family’s income over the past several years, so values either have to come down or incomes will have to go up in order for the market to regain its equilibrium,” he said.

“Incomes might go up a little bit, but you’re not going to see them soar because we’re in a recession. So home prices are going to have to drop in order to balance things out.”

East’s comments didn’t come as too much of a surprise: He’s been bearish on the state’s housing market for months.

But even normally upbeat experts at the convention found it hard to say anything good about the real estate market’s current health and its short-term future.

“It’s not a very happy time,” summed up Jack Kyser, chief economist for the Los Angeles Area Chamber of Commerce. “We’re in for a period of much slower growth in California.”

This year’s slowdown in sales and home prices wasn’t entirely unexpected.

At last year’s convention, CAR economist Leslie Appleton-Young predicted that sales would drop about 10% in 1990 and that prices statewide would rise only about 9%--far below the 17% appreciation rate in 1989 and the 18% gain recorded in ’88.

Yet, the severity of the slowdown caught even Appleton-Young by surprise. After a string of disappointing sales reports earlier in the year, the economist revised her 1990 forecast and now expects fewer sales this year and a mere 1.5% increase in the value of a median-priced home.

Next year won’t be any better.

“Next year, we’ll see a continuation of what we saw in 1990,” Appleton-Young said in an interview. “Sales will continue to decline and overall prices will be flat, but things should improve in 1992.”

Appleton-Young said sales and prices in the high-priced coastal areas of California will likely remain soft throughout most of next year as those areas continue to adjust after running up more than 20% a year in the late-1980s.

Buyers next year are also expected to continue their trek to less-urbanized areas inland where home prices aren’t as high, she added.

But the economist hinted that price increases in the first-time buyer’s mecca of the Inland Empire may slacken, in part because there’s a glut of new homes in the region and prices there have risen steadily over the past few years.

The biggest price hikes next year are expected to be in the Central Valley, from Bakersfield in the south to the Sacramento area in the north.

“Homes there are still very affordable by California standards, and that attracts people who can’t afford to buy houses in bigger cities,” Appleton-Young said.

This year’s slowdown has left many realtors struggling to drum up new business.

“I’m calling all my friends and relatives, seeing if they want to buy or sell or if they know somebody who does,” said Mildred Hawkins, who owns a Realty World outlet in San Diego. “That wasn’t really necessary a year or two ago.”

The slowdown in the Southland’s major metropolitan areas is having a ripple effect on less-urbanized areas.

“So much of our business is dependent on what’s going on in Los Angeles and Orange County,” said Colleen McCormick, who owns a brokerage office in the tiny Riverside County community of Nuevo. “When things slowed down there, they slowed down where I work.”

McCormick, like so many other realtors at the convention, said the few buyers still in the market are getting tougher when it comes to negotiating.

“I was selling a ranch property and the buyer really drove a hard bargain,” she said. “After we finally agreed on a price, the guy said, “OK, I’ll buy the place. But you’ll have to throw in the goat, too.”

Many brokers are keeping their cool, despite the downturn in business.

“Sales have slowed down, but what you’re really seeing is that we’re returning to a more normal market,” said George Baker, a realtor in the West San Gabriel Valley.

“You couldn’t sustain the sales pace we had a couple of years ago. Things had to slow down sooner or later.”

Although sales are also down sharply in Tehachapi--a picturesque town about 100 miles northwest of downtown Los Angeles--realtor Suzanne McReynolds said she’s optimistic that the market’s health will soon improve.

“The government is aware that we’ve got a serious housing problem, and it’s finally doing something about it,” McReynolds said, noting that Gov. George Deukmejian recently unveiled a $2-billion housing plan to aid first-time buyers.

“That should give the market a shot in the arm.”

The sizzling Bakersfield market doesn’t need any booster shots. Recent figures show that prices there are shooting up about 1% a month, fueled by the growing number of buyers fleeing expensive big cities.

“We’ve been getting a lot of people who can’t afford to buy in L.A.,” said Leo Worrell of Karpe Realtors. “A few are even buying in Bakersfield and commuting to the San Fernando Valley every day.

“But we’re also seeing a lot of homeowners move in from places like L.A., Santa Barbara and Morro Bay. They’re selling their (current) homes, buying a nicer home in Bakersfield, and putting their $100,000 leftover profit in the bank.”