Property Values, Spirits Sink on Peninsula : Real Estate: Forced to sell once-expensive homes for less than they paid, more homeowners are facing foreclosure. And experts predict the market will only get worse.

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Property values are skidding in the boots-and-saddles suburbs on the wealthy Palos Verdes Peninsula. Homes listed at $2.5 million two years ago are being sold in foreclosures at less than half that price, records and listings show.

The sledgehammer impacts of defense cuts, white-collar job losses and the prolonged recession are forcing a growing number of people on the peninsula and in nearby communities to sell their homes for less than they bought them for--sometimes a lot less, experts say.

“People who’ve got to sell now are getting killed,” said Larry Arman, a real estate broker on the peninsula. Arman, who represents Citibank in foreclosure sales, says the market for sellers will get worse before it gets better. “I handled maybe three foreclosures six months ago. Right now I’ve got 65 in the South Bay and Long Beach.”

Nearly a third of the homes on the market in the four peninsula cities during the last three months were selling below their previous sale prices, reports Dataquick InformationSystems, a San Diego-based property tracking service.

From July through September, the firm looked at 187 single-family home sales on the peninsula and found that 28.8% of the homes sold for less than the sellers had paid for them. In the third quarter of 1990, by contrast, only 5.8% of home sales were made at prices below the previous sales price, said Dataquick spokesman John Karevoll.

In Southern California during the same three-month period, 18% of single-family homes sold for less than the owners paid, up from 3% two years ago.

Feeling the effects of the trend are people who bought homes in the mid to late 1980s, when prices peaked. Buying with 20% down payments, and perhaps investing in remodeling, they now face market prices that would not yield them enough money to offset what they owe, experts say.

While evident in Southern California as a whole, such pressures are especially acute on the peninsula.

Sellers who only two or three years ago had large equities are now being offered 10% to 20% less than they had paid, with the highest-priced homes taking the hardest knocks, Arman said.

Interviews with frustrated peninsula homeowners show that some people who were barely hanging on, hoping the economy would turn around, are now taking heavy losses--or just walking away, broke and in bankruptcy.

“We’ve just quit making the house payments,” said one distressed homeowner, a 45-year-old investment banker.

The banker, who declined to be quoted by name, lost his $140,000-a-year job, was unemployed for months and is now working for about half what he was making. Deep in debt, he and his wife can’t afford to make their $4,000 a month in house payments.

They’ve tried to sell, starting at just over $600,000, wanting to recover something from the four-bedroom, three-bath home on a quiet, tree-lined street. There were no takers, so they dropped the price. But the best offer was only $485,000.

Unable to sell and months behind on their payments, they’ve filed for bankruptcy, hoping to salvage something.

According to some analysts, the market for sellers will worsen before it improves.

“We expect to see the market go down even further,” said UCLA economist Larry Kimbell. People who can hold off selling for another two or three years may catch a rebound, he said, but those who are forced to sell now will fuel even sharper declines.

That’s particularly true on the peninsula, where residents with six-figure salaries have lost their top-level managerial jobs as a result of aerospace industry layoffs, savings and loan failures, airline bankruptcies and takeovers.

Jane and John Doe--who didn’t want their real names used--built their $1-million dream house on the bluffs high above the Pacific, investing in what seemed a secure future. He was a highly paid executive, she a mom with a houseful of kids.

That was five years ago. For the first couple of years, their prospects looked great. They had a live-in maid and a large, comfortable home that was going up in value fast. Then, the bottom fell out.

John, 54, lost his job when his company went belly up. With him unemployed for more than a year, the couple lived on savings, sold off investments and borrowed against the house, going deeper in debt.

Two years ago they put their house on the market, listing it for $2.5 million. There were no takers. They reduced the price, got a few offers they couldn’t accept, then took the house off the market and borrowed more.

John found a low-paying job, but isn’t making enough to keep up the payments. The lenders are foreclosing.

“It’s like your worst nightmare,” Jane said. “We’ve used everything we’ve saved, sold everything we could . . . and now we’re about to go over the edge.”

Looking back, it’s clear that the long ride up in real estate prices peaked and flattened sometime in 1989, Arman said. Housing prices, however, didn’t start to fall right away. The market flattened, then started a gradual downturn that tempted sellers to hang on, hoping for a quick turnaround in prices.

Arman points to a house in escrow now at $1.4 million that was originally listed at $2.3 million. Six months ago the seller turned down a $1.7 million offer. Another $300,000 had dropped out of the price before the deal came together, he said.

Such stories are common in most price ranges, said UCLA’s Kimbell. “When prices soften, sellers still have high expectations and they don’t move property,” he said. But waiting only masks the depths of the downside. Then, distressed sales force the issue, exposing just how soft the market has become.

Said Kimbell: “That’s what’s happening now.”

Diminishing Returns Homeowners are finding it harder to profit on the sale of their property. Chart shows the percentage of home sales in Southern California and the Palos Verdes Peninsula that yielded less than the property’s original purchase price. 1990: Third Quarter Souther California: 3.0%Palos Verdes Peninsula: 5.8% 1991: Third Quarter Souther California: 9.4%Palos Verdes Peninsula: 23.4% 1992: Third Quarter Souther California: 18.0% Palos Verdes Peninsula: 28.8% Source: Dataquick Information Services