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Managing Your Money : Experts Say Buying a Home Is Still a Good Investment : The consensus is that it pays to buy a house--over the long haul. Just don’t count on a repeat of the 1970s and ‘80s, when prices of some housing rocketed.

TIMES STAFF WRITER

To buy or not to buy. That is the quandary for many would-be home purchasers as mortgage rates come tumbling down and buyers have the upper hand in California’s sluggish real estate market.

Today’s lower prices look tempting, but they’re still far from cheap. And real estate’s current doldrums have some people wondering if the good times in housing appreciation are gone for good.

Among people paid to worry about this, the consensus is that it still pays to buy a house--over the long haul. Just don’t count on a repeat of the 1970s and ‘80s, when prices of some California bungalows vaulted into the stratosphere, and even a dunderhead could turn over a house for a fast killing.

Indeed, if the economy remains sluggish over the next two years, housing “probably won’t be as good as stocks and bonds,” says Gary Schlossberg, senior economist with Wells Fargo & Co.

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At Prudential Securities, George M. Salem goes much further. For more than a year, he has been forecasting a residential real estate collapse in the state.

Salem contends that the “California economy is in the early stages of a structural decline, and it will under-perform the nation indefinitely.”

Housing here is the highest-priced in the nation, corporations are leaving to escape the crowds, costs and regulations, and much of the population influx consists of poor immigrants who have little hope of buying homes, Salem says.

“Would you buy an asset that has a high likelihood of declining in price?” he asks. “The answer is N-O.”

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However, real estate experts have always said it’s unwise to view a house purely as an investment, but rather as a multipurpose asset that provides shelter, hefty tax advantages and a potentially good return.

And if you have the down payment, homeownership probably still pencils out. Consider that someone paying $1,000 a month in rent could take on a $1,500 monthly mortgage with the same after-tax result, except instead of piling up canceled checks, you get to own something.

Moreover, Salem is unusually bearish. Schlossberg, for example, predicts that over the long term, housing probably will equal or outpace securities.

Many experts say the recent slippage in California home prices is merely a cyclic response to the huge gains of the past 20 years--and a healthy adjustment to boot.

“Homes are going to resume a moderate rate of appreciation over the ‘90s,” said Richard Peach, deputy chief economist for the Mortgage Bankers Assn. of America in Washington, who describes himself as “in the mainstream” on this.

Besides, home buyers have rarely been motivated by money alone. Consider the “psychic income,” the intangible benefits that come with owning a home: tending a garden, decorating to one’s taste, forgetting about a landlord’s whims.

For those who insist on buying for such reasons, Salem has a piece of advice: “Bid low. You might surprise yourself. This is the best buyers’ market in California ever.”

Many buyers will have to bid low, because relatively few can afford the typical California house. Even at the lower prices that homes command today, many would-be buyers have trouble scraping together a down payment.

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The median California single-family home price in September was $198,920, and the California Assn. of Realtors reports that just 23% of the state’s households could have qualified for the necessary mortgage. (About 37% could have qualified for a condo at a median price of $146,590.)

Certainly, history is on the side of the California homeowner, who has made out like a bandit. A hypothetical California homeowner who put 20% down on a single-family home in 1983 at the statewide median price of $114,620 and held it through 1990 would have enjoyed a 20.4% average annual return on equity adjusted for inflation, according to the association.

By contrast, short-term gains have varied widely. A homeowner who bought in 1983 or 1989 and held the house just a year would have lost some equity.

“It’s hard to know when to buy to take advantage of a long run-up,” said Robert Williams, a UCLA emeritus professor of business economics who has studied land values.

On a strictly financial basis, home ownership in the ‘90s is hardly a slam dunk, said Jon Sonstelie, a professor of economics at UC Santa Barbara.

In the 1970s and 1980s, he said, housing prices appreciated rapidly. Like the 1960s, the 1990s are shaping up as a period of relatively modest appreciation--except that this time around, unlike the ‘60s, housing prices are high relative to rents. As a result, Sonstelie said, you might want to hang onto that apartment and buy Treasury bills.

Government policy plays a role too. There are rumblings in Congress about limiting mortgage-interest deductions. Higher interest rates could boost the appeal of investments such as certificates of deposit and make buying a house less attractive. The U.S. Supreme Court has agreed to consider a challenge to Proposition 13, the California property tax-limitation measure passed in 1978.

Even so, Michael Meyer, managing partner of the Newport Beach office of Kenneth Leventhal & Co., an accounting firm and real estate adviser, maintains that the supply of new homes over the next few years will not keep up with the demand in California.

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