Reading Signs--Is Market at Bottom?

SPECIAL TO THE TIMES. <i> Inman is a syndicated real estate columnist</i>

When Steven Rasmussen and Felicia Woytak bought their first house in the depths of the 1982 recession, the Oakland couple faced an unfriendly real estate market.

Economic uncertainty prevailed; interest rates were hovering around 15% and home prices hadn’t softened since the run-up in the late 1970s.

As it turned out, “we hit it right,” said Woytak. They bought at the bottom of the market and have since made substantial equity gains as prices crept up in 1983 and 1984 and boomed for the next five years.

“Everyone wants to buy at the bottom of the real estate cycle,” said Richard Peiser, director of USC’s Lusk Center for Real Estate Development. “But it’s impossible to forecast exactly when that will occur; like the stock market, it’s a matter of luck.”


He pointed to the recovery in the Texas housing market, which “ratcheted down for several years and then bounced back so fast that some analysts were still bemoaning how bad it was.”

After a two-year skid, the second-quarter jump in California home sales may be the first sign that the state’s real estate market is now recovering.

Is this a signal that the market has finally hit bottom? Not necessarily.

“We believe that many housing market observers overestimated the potential strength of a market rebound and mistook post-Gulf War demand for a long-term cyclical recovery,” wrote analyst James Wood in Montgomery Securities’ Monthly Housing Monitor.


Even the California Assn. of Realtors is predicting that there will be fewer houses purchased this year than last. Although the trade group recently revised its 1991 forecast upward, it still expects that sales will be 6% lower than in 1990 and that the appreciation of home prices will lag behind the rate of inflation.

While the figures for the second quarter were an improvement, many experts say the rebound in the spring was short-lived because home buyers are still uncertain about whether the once-booming California real estate market has bottomed out. Along with other economic factors, this hesitancy may prolong the slowdown and delay a return to historic appreciation levels.

Most consumers are wavering because of the economy, not because “they are looking for a steal,” according to Napa real estate agent Terry Wunderlich. “There are a lot of potential buyers out there, but they are holding back because of what is going on in the world, because of uncertainty about their jobs, their raises and their promotions,” said the 10-year Coldwell Banker veteran.

In some quarters, concern for the California economy is growing. Once touted for its diversity, the state is troubled on several fronts. Tourism is down because of the national recession. A shakeout in the aerospace and electronic industries is chipping away at the state’s manufacturing base. Agriculture is suffering from the winter freeze and the drought, and public employment will decline as government deficits increase.


All of these sectors, however, could turn quickly. And it is difficult to find an analyst who isn’t bullish about California’s long-term outlook.

“We are very optimistic,” said UC Berkeley assistant Prof. John Landis, who just completed a study on the future of the state’s real estate market. “All of this bad-mouthing of California from Wall Street seems to be unfounded: strong population and job growth through the 1990s is our prediction.”

Even so, Landis doesn’t expect the economy to show real strength until 1995. And when the economy does rebound, it may be an uneven recovery.

“The Central Valley is going to roar back before the coastal urban areas,” Landis said. He predicts that home prices will rise 3% to 5% in coastal areas next year but jump as much as 7% to 9% in the Central Valley.


That’s because home prices in the urban coastal areas were bid up too high during the last inflationary spiral and will take “some cooling off before incomes catch up with prices,” Landis said.

For the wary home buyer who is trying to sort all of this out, Peiser recommends: “If you feel the markets are depressed then that’s the best time to take the plunge.”