DONALD P. KENNEDY, President, First American...

What kind of an indicator is the title insurance industry for the real estate economy?

On new housing, it’s a leading indicator because we’re in at the beginning--the purchase of the land, the detail of the map and so forth. We’re a 60-day to 90-day leader as far as normal transactions are concerned. What we watch is the level of new orders because our costs are on the front end of those transactions. We have to prepare the preliminary reports and so forth for closings, which is when we get our money. And the closings occur 60 to 90 days after we’ve done the work. So we’re a fairly good leading indicator, a hell of a lot better than the federal government.

So what’s happening now?

As you know, we’ve gone through a roller-coaster ride, beginning with the desert fury (the Persian Gulf War). When the government threatened to move in, new orders dwindled down to a few. Then, we went into the desert, and orders just completely stopped--so much so that the pipeline for new housing dried up. We lost more money during the first quarter of 1991 than we’ve ever lost in our lives. But in the last nine months, we’ve made much more than we’ve ever made before. And it’s strange because the volume of business and the mix of real estate transactions (are)entirely different than we’d like (them). What we’ve had is a giant number of refinancings, which are now beginning to taper off as the interest rates level off. We do the title work for a big discount, 35%.

You don’t seem to care much for the refinancing business.

The refinancings are fine, but they make you nervous. When everybody runs like that, you don’t have any idea how many are going to close and produce income. Also, during this period after the war, we had more orders than we ever had in the history of the company, and that dislocates your personnel. It makes it a difficult task to staff up.

When is the recovery supposed to occur?

I wouldn’t bet your hat on the commercial real estate business coming back for another year or two, especially in Orange County, which is overbuilt. We see some evidence of a recovery in residential resales in California--in Southern California too. What we don’t see is a great new housing boom. We see almost a shortage occurring. There is no money for new housing construction from the banks.

Realtors say there’s a lot of houses going unsold.

Although a lot of those houses aren’t selling, there’s an increase in the actual number sold. Before there wasn’t any activity of any kind--listings or sales. You can’t have a defense industry layoff X number of people and you can’t have banks lay off X number of people in the Orange County area and not be hurt. But there are signs of recovery, though it isn’t going to be really strong until the banks get healthy again. And that won’t happen until at least the end of the year.

Once the market picks up, will we also see housing prices soar again?

Yes, it always happens. It’s not reasonable, but it always happens. The building business is one of the last free markets in the world. Those guys really are entrepreneurs. They got to be careful, though, not to price themselves out of the market. It’s a fine edge.

It is widely believed that Orange County especially will take longer than the rest of the state and the nation to recover. Do you agree?

I think that a lot of that will depend on the effect of the defense industry slowdown and how the computer and technology groups perform. There’s a lot of stirring about and some falling off and some consolidation. But you just can’t write Orange County off. Orange County’s got too much going for it. It was more greedy than a lot of the other areas in the country, and it’s going to take some time. But it’ll be strong. The economy doesn’t have to be crazy like it was in the latter part of the 1980s. You don’t have to live like that. Just let’s have a nice steady, strong economy, and I think Orange County’s capable of that within the time frames that I mentioned.

So even with a loss of aerospace and defense jobs, the county should recover soon?

Yes, I think so, because I think there’s going to be new industry. People like to live and work in Orange County. They bitch about it, but they like to live and work here. I see (housing) availability going up; people are still coming into Orange County. They’re still coming into California. What the quality of life may be is something else.

So traveling to work is just going to get worse.

We all ought to be thinking of nothing but transportation. I got a letter today from a committee that actually might have a chance to do something about the transportation situation. That would be so helpful. My own view is that we should have a monorail right along the freeway because if you have to negotiate for a right of way, that gets murderously expensive. But if you’ve already got the right of way, you make a deal with the state and just put all this transportation down the center of the freeway on a big monorail. It can be done. In the old days, they had leadership. They had guys who said: ‘I don’t give a damn about the government or anybody else, we’re going to get it done.’ We don’t have that anymore.