Grim Year for Real Estate Ends on a Modest Note of Optimism : California Home Sales in 1992 Hit Their Slowest Rate in Seven Years
For the Southern California real estate market, 1992 wasn’t just a year to forget. Repression doesn’t seem strong enough to expunge its awfulness.
But like so many bad dreams, this one will probably recur. In 1993, for example.
“There’s still an oversupply of homes for sale in most areas and a lot of people are still worried about their jobs,” said Frederick Cannon, chief economist for Bank of America. “Nervous people just don’t buy homes.”
Things are so bad that Fred Sands Realtors, one of Los Angeles County’s biggest brokers, took the extraordinary step in late November of writing to each of its 5,000 clients. “You basically have two choices,” the letter said. “Forget about selling your property for the next three years, or reduce the price and get it sold.”
At least the year ended on an upbeat note: The California Assn. of Realtors recently reported that sales rose for the third straight month in November.
Although the gain was modest--less than 2%--it fueled hopes that the worst of the state’s housing slump is over.
But when the final tallies are done, 413,000 California homes will have been sold in 1992, according to the realty trade group. That would be off 3% from 1991 and the slowest sales rate in seven years.
The depth of the downturn caught many analysts by surprise. The realtors, for example, initially predicted that sales would rise 4% last year, as the economy strengthened and mortgage rates remained low.
Indeed, rates hit a 20-year low. But new rounds of layoffs in California’s key industries and uneasiness about the overall economy kept most would-be buyers on the sidelines.
Prices dropped too. The median price of a home in the six-county Southland area now stands at $181,000, according to La Jolla-based Dataquick Information Services. That’s down 3.2% from a year ago.
And even though recent government reports have indicated that the economy is strengthening, no one is predicting a quick turnaround for the housing industry any time soon.
Even real estate agents, normally an upbeat lot, can’t muster much enthusiasm for the year ahead: Forecasters at CAR expect sales to rise just 2% from 1992’s anemic levels.
Sales are expected to climb a healthier 4% across the country, according to the National Assn. of Realtors.
“Most other parts of the country entered the recession earlier than California, and now they’re starting to pull out,” said John Tuccillo, NAR’s chief economist. “California was the last housing market to fall, and it could be the last to get back up.”
Homebuilders have been hurting too, but ’93 shouldn’t be as painful.
Economists at the National Assn. of Home Builders say housing starts across the country should rise to 1.32 million units this year. Although that would be up 10% from 1992’s estimated 1.2 million starts, it would remain well below the 1.6-million average of the 1980s.
Ben Bartolotto, research director for the nonprofit Construction Industry Research Board in Burbank, said 1992 housing starts in California were about 95,000 units, down 10.3% from 1991 and the lowest level of activity in a decade.
But Bartolotto predicted that housing starts in the state will surge 20% this year, to 114,500 units, as the economy slowly improves and lenders overcome their jitters about financing new developments.
This year “won’t be a boom year by any means, but it’ll be much better than 1992,” Bartolotto said. “Builders have nowhere to go but up.”
The commercial real estate market has nowhere to go but up as well. Vacancy rates in most Southland office markets hover at about 20%, and they exceed 25% in downtown Los Angeles, according to the commercial brokerage firm of Julien J. Studley Inc.
“Construction is at a standstill, and we’re slowly eating up all the new space that came on line over the past few years,” said Howard Sadowsky, Studley’s regional manager. “Companies should become more willing to rent new space as the economy picks up steam.”
One of the few bright spots in the real estate industry in ’92 was the prolonged decline in mortgage rates. Rates on fixed, 30-year loans fell below 8% at midyear, the lowest level in two decades. Although the rate drop didn’t trigger a surge in sales, it allowed millions of homeowners to refinance and lop hundreds of dollars off their monthly payments.
The “refi wave” was a godsend to many mortgage lenders, whose first-half loan volume was generally lower than expected because home sales were so slow.
But with refinancings beginning to wane and no more sharp drops in interest rates expected in 1993, lenders must hope that the sales pace picks up if they’re to match their ’92 output.
“We think mortgage rates have dropped about as far as they can, so we can’t depend on a lot of refi activity in ‘93,” said Sam Lyons, senior vice president of Chatsworth-based Great Western Bank. “We should be able to match or even exceed our ’92 volume, but the resale market will have to improve for us to do it.”
Much Pain, No Gain
Southern California real estate fared badly in 1992, reflecting the region’s battered economy. Among single family homes, for instance, small homes held their value, but bigger places took big hits. Commercial properties were also in the tank, by historical standards, with vacancy rates remaining stubbornly high.
Fourth-Quarter Vacancy Rates Downtown Los Angeles: 21.7% Mid-Wilshire: 21.0% Pasadena: 13.5% Glendale: 13.7% West Los Angeles: 19.0% South Bay: 21.3% San Fernando Valley: 15.9% Orange County: 19.0% Inland Empire: 22.0% SOURCE: Dataquick Information Systems, La Jolla.
SOURCE: Grubb & Ellis Commercial Real Estate Services
