State Real Estate Recovery May Be Slow, S&Ls; Told

Residential real estate markets in California will take another 18 months to recover, while the state’s commercial real estate sector could be stuck in a downturn for another three years, real estate experts predicted Tuesday.

The news offered little encouragement to savings and loan executives here attending the annual convention of the U.S. League of Savings Institutions, the industry’s main trade group. But a panel of real estate experts did predict that California will not suffer a New England-style real estate recession, and that the fallout for lenders will be limited.

Kenneth T. Rosen, chairman of the center for real estate and urban economics at UC Berkeley, said median house prices in some areas of California, which have already fallen from 4% to 6%, may drop another 5% to 10% before turning up.

He said a Southern Californian forced to sell a home today would likely have to sell at a price 10% to 15% below the peak of early 1989. Rosen said he expects that lenders will see increases in late mortgage payments and foreclosures as they did during the 1981-82 recession.

Still, Rosen said, California’s slump differs significantly from New England’s, where housing prices have dropped about 10%. Rosen said the New England real estate boom that preceded the current slump was driven by a huge growth in income, not population growth.

California’s boom, however, was driven by migration of people into the state, and that is expected to continue, Rosen said. He noted, for example, that California can expect a huge influx of people from Hong Kong before the colony is turned over to China in 1997.

Anthony Downs, a real estate expert at the Brookings Institution in Washington, said commercial development is in a depression. He said the building boom of the 1980s, caused by such factors as easy credit and favorable real estate tax laws in the early part of the decade, caused so much overbuilding that it may take five years before builders start launching new commercial projects.

“We built too damn much space,” Downs said. “We have got to absorb that space and it will take us a long time.”

Downs said, however, that the halt in new projects ultimately will have a positive effect because it will strengthen the market for existing commercial buildings.