COLUMN ONE : REGIONAL REPORT : Realty as a Barometer of Reality : Pain spreads among California homeowners trying to hang on to their homes. Foreclosures are up and sales sluggish, but fears of a Texas-style market plunge appear unfounded.

By JUBE SHIVER JR. and TOM FURLONG

Oct. 8, 1992 12 AM PT

TIMES STAFF WRITERS

Call them real estate’s walking wounded in Southern California’s increasingly treacherous and unforgiving economy.

Basil Xavier is about to lose his $300,000 home in Orange because his computer service business failed earlier this year. In the go-go days when real estate soared in value, Xavier borrowed heavily against his house to fund his business--but now the debts on the home far exceed its falling value.

John Lage owns a five-bedroom home in Palmdale whose value has dropped by nearly a quarter since he bought it two years ago. Now faced with a divorce that is forcing him to sell the house, he is staring at a possible loss of about $80,000. “I’m going to lose no matter how you look at it,” he says.

From elegant hilltops to blue-collar enclaves, Southern Californians are watching the regional economy wreak havoc on their beloved and most valuable assets: their homes. The regional housing market is a telling barometer of hardship, and neither the lowest mortgage rates in decades nor more affordable home prices seem to be having much impact.

“People’s confidence in . . . real estate is shaken to the core,” said Steve Love, a personal financial adviser in Torrance.

Regardless of the area--Palos Verdes or South Los Angeles--the for-sale signs are ubiquitous. On one block alone in Mission Viejo, seven homes were recently for sale or in foreclosure.

“You keep lowering the price and nothing happens,” complained Frank Karlsson, a retired property owner in northern San Diego County. “You hold open houses and no one comes. This is a disaster.”

Some signs of the pain:

* More and more property owners are losing their homes because they fall behind on their mortgages and cannot catch up on the payments. Foreclosure actions began on 7,316 residences in August--up 6% from July, according to Dataquick Information Systems of La Jolla.

* Real estate agents and brokers are leaving the field in droves. There were 147,550 in 1990 but the field is expected to shrink to 126,000 statewide by the end of 1992, according to the California Assn. of Realtors.

* Home builders have also been decimated. Membership in the California Building Industry Assn., the state’s leading trade group for home builders, has dropped to 1,559 this year statewide from more than 2,000 in 1990, an assocation spokesman said.

Among those suffering the most from the slump are sellers who bought their homes after mid-1989, when the white-hot market of the late 1980s began to cool, and now need to sell.

More fortunate are buyers flush with cash and big builders who--by concentrating on inexpensive, entry-level homes--have lured throngs of mostly first-time buyers to Orange, Los Angeles, San Diego, San Bernardino and Riverside counties.

Many in the industry had expected the market to hit bottom and start bouncing back up this year. Now, many economists believe the housing slump is likely to persist at least into 1994. The most bearish forecasters, however, believe the hard times may worsen and last several more years.

“The eye of the hurricane has yet to come ashore,” said George Salem, banking analyst for Prudential Securities, who predicts that higher-end residential property values will fall as much as 40% before the market hits bottom.

A close look at key housing numbers, though, suggests that some of the gloom is unwarranted--so far.

Although home sales have plunged nearly 40% below their peak of the late 1980s, predictions that California would see a widespread Texas-like collapse in housing prices have not materialized. And with 5 million or more people expected to arrive in the state over the next decade, such a collapse is unlikely, most experts now say.

Statistics from TRW REDI Property Data in Riverside, for example, show that average home prices have remained reasonably stable in recent years. The average home in Southern California sold for more than $214,000 in August, roughly the same as in 1989 and 1990 and down less than 6% from the all-time high of $226,414 in May, 1991.

The slowdown, though, is clearly evident in sales figures. Just 207,000 homes sold last year, down 38% from the peak level in 1988, and this year’s sales pace is even more languid.

Investor speculation is at a standstill, while the so-called move-up market--in which sellers “trade up” for larger, more expensive homes--is moribund. Potential buyers cannot move up if they are unable to sell their present home.

The market’s health is being hurt by continued layoffs. Not until the job losses are stemmed will the general housing market recover, economists say.

A few weeks ago, Richard Procter lost his $65,000 newscasting job with a local television station just days before he and his fiancee were to purchase their dream home--a $329,000, three-bedroom English Tudor in Altadena.

The layoff scuttled not only Procter’s purchase but also prompted his landlord, who had been planning to put Procter’s rented house up for sale and buy another house, to shelve those plans.

“I got about as close to buying a house as you can get without completing the deal, but the economics of local television are just as bad as the rest of the economy,” said Procter. “I have high hopes that I will be employed soon.” But as far as housing is concerned, Procter said, the 1990s are “going to be a lot (worse) than the go-go 1980s.”

The strains are beginning to show up at the state’s largest lenders--even those that largely escaped the savings and loan industry’s carnage of the 1980s.

Foreclosed property rolls at Home Savings of America, for example, have nearly doubled in the past year. And First Interstate Bank now telephones borrowers just days after their mortgage payment is due instead of mailing dunning notices. First Interstate reasons that by interceding early, it can head off more borrower defaults, bank Vice President Dorothy Kviberg said.

Investors and some small- and medium-size builders have also been hit hard.

During one brief period in May, troubled Pacesetter Homes in Newport Beach gave its lenders title to three housing developments valued at more than $40 million to avoid foreclosure. Another Orange County builder, Presley Cos., recently said its assets had dropped $26 million in value.

Even publicity-shy--and once go-go--real estate mogul David H. Murdock has been slowed down.

Murdock, who has rarely given interviews, recently made himself available to members of the press and real estate brokers in an effort to promote his new Sherwood Country Club development of 416 luxury homes in Ventura County.

“People are very spooked right now,” Murdock said at a recent open house. “I think we’ll sell all of these homes. But it may take a little longer than we had planned.”

The normally reclusive Murdock turned on the charm and spent more than three hours tooling around his 1,600-acre parcel of million-dollar homes in an electric golf cart with a reporter, a photographer and two aides in tow.

Sales of the $700,000 to $2.4-million homes, he said, so far are “not meeting expectations. When I first started this project five years ago, we were in a boom period. But we are not totally dead. We don’t have a mortgage on the land. Our break-even point is lower than most (developers’).”

Not so fortunate is Rick Elenes, who has yet to sell two large upscale houses he built on the secluded shores of Lake Sherwood, not far from Murdock’s development.

He has had no luck selling the homes though he pared the asking price by a third, to less than $800,000. A recent attempt to sell the homes at auction failed when no one offered the minimum bids.

What strikes Elenes today is that, even among the affluent, bargain-hunting has replaced quality as a top priority. “By the time I was done (building the homes), people did not want quality anymore,” the 43-year-old developer said in a phone interview. “They just wanted a good deal.”

Basil Xavier’s troubles began after his 11-year-old business--which relied heavily on the hard-hit aerospace industry for its contracts--went under after three years of tough times. With no income, he no longer can pay the three mortgages on his home.

“I have lived with this a long time,” said Xavier, who faces the prospect of moving his family into a rented home and working as a consultant as he untangles his personal and business affairs in bankruptcy court. “I have to get on with my life.”

John Lage’s woes also reflect the housing market’s vicissitudes.

By his own account, he has fallen long and hard from the days when he was an up-and-coming property investor with a growing portfolio and burgeoning net worth.

Lage’s trade was once a common one in Southern California: He bought homes, fixed them up and sold them for a profit. Though he did not achieve his goal of being a millionaire by age 30, Lage said, he did not miss by much.

Like many residential property speculators, though, Lage ignored the signs of the coming recession and took a financial bath after prices slumped. Now, he is facing a big loss on his personal home in Palmdale that he bought in June, 1990, and has for sale at $249,000.

Finding buyers will not be easy--even with interest rates at enticing lows of less than 8% for a fixed, 30-year-mortgage. Consumer confidence fell in September for the third month in a row and reached its lowest pre-election level in 20 years, according to the Conference Board, a New York business group that tracks consumer sentiment.

Many potential buyers are holding back because they are unsure how far property values will fall, or even if they are going to be employed as bad news about job losses continues to mount.

Other borrowers have been rebuffed because lenders--pressured by federal regulators to apply more stringent credit standards in the wake of the savings and loan debacle--have become tightfisted.

Some compare Southern California’s economic plight to the calamity that befell Texas in the mid-1980s and the current recession in New York and New England.

Citing the state’s huge job losses, UCLA economic forecaster David Hensley took the comparison a step further. “It is unsettling to find that, no, this is not Texas,” he said in his recent forecast report. “This is much worse.”

But Chuck Lamb, president of the California Assn. of Realtors, argues California cannot easily be compared to other regions. He notes that California’s economy is both more diverse and larger than that of Texas or New England. He also said investor confidence in the region remains strong.

“We think we are much more central to the nation’s economy than those other two places,” Lamb said. “California is still the most desirable place to live in the world and everybody knows that.”

Denise Russell, who lives in a working-class neighborhood near Crenshaw Boulevard and Slauson Avenue that was seared by the riots this past spring, is not one of the believers. She plans to move to Washington state, where her husband will seek work as a computer programmer and she will raise their 3-year-old son in what she considers a healthier environment.

She has her small home for sale for $135,000. “I’ve been watching Los Angeles deteriorate” for 19 years, said Russell, “and I’m just tired.”

Another homeowner who may follow Russell out of California is an unemployed corporate executive in Mission Viejo who is trying, with his wife and four children, to start over at age 42. He lost his job in 1990 in a corporate shake-up at a hospital company.

Unable to find full-time work ever since, he is facing foreclosure on his house and growing increasingly desperate. Though eager to talk about his plight, he does not want his name used for fear his children will be embarrassed.

While driving last summer to Austin, Tex., where he went to college and where he may move, he was struck by the myriad U-Haul trailers, loaded with furniture and other personal belongings, on Interstate 10. It reminded him, he said, of “The Grapes of Wrath”--except everyone was leaving California, not arriving.

The Ups and Downs

Average home prices in Southern California have dropped from a peak reached in most counties about 1991. Regional prices have declined only about 4.3%, but many real estate analysts fear that prices have not yet hit bottom. Southern California

‘87: $179,733

‘88: $205,008

‘89: $216,672

‘90: $210,776

‘91: $225,515

‘92: $215,721 Los Angeles County

‘87: $211,191

‘88: $237,119

‘89: $247,300

‘90: $237,582

‘91: $255,012

‘92: $240,230 Orange County