Q&A; : Real Estate Consultant Says Buy Now : Consultant who has watched O.C. market for decades says pent-up demand will produce a statewide housing shortfall.


Orange County home sales are up nearly 35% during the first four months of this year and with the prices for houses and raw land starting to firm, real estate experts are hailing the early stages of a recovery.

Rates for fixed-rate mortgages now average more than 8% compared to around 7% a year ago, and some home buyers are wondering whether to rush in and buy a home now before rates rise further or hold off, betting that rates fall next year.

Kenneth W. Agid, founder and principal of the Marketing Department in Irvine, a real estate consulting firm to such master-planned communities as Rancho Santa Margarita and Coto de Caza, has watched the Orange County real estate market take a roller coaster ride for more than 20 years. Last week, Agid, 51, discussed the local home-buying market and made some predictions about its future health. His advice to those considering purchasing a home in Orange County: Buy now.

Q. What would you tell a potential home buyer nervously surveying the changes in our local residential real estate market, especially those concerned that the recent spike in home sales may prompt an increase in prices?

A. First thing I would say is hurry. I'm not saying they should rush into a decision without doing a thorough analysis, but I also think sitting at home and pondering a decision about whether to go out and start looking is the worst decision they could make.

It's liable to cost them $10,000 to $20,000 in the price or value of the home they will be able to acquire and the situation is not going to get any better. And the most important thing is that the housing alternatives available to them are going to be rapidly disappearing, and that's both in the resale and new-housing sector.

Q. Why do you say housing alternatives are rapidly disappearing? Lately there have been announcements about new housing projects throughout Orange County, including Centex Homes' purchase of 915 housing lots in Foothill Ranch.

A. These projects that are coming down the pike are a drop in the bucket. Everyone keeps talking about this phenomenal housing recovery in terms of how strong it is, but this is just the start and we are nowhere near approaching the capacities necessary to keep pace with market demand.

The housing industry is in the process of emerging from one of the four elements of the typical cycles impacting this industry. There are four periods in a cycle: the period of contraction, the trough, which we are just coming out of, the period of accelerated growth and the peak. We are emerging from the trough and moving into a period of accelerated demand for housing. It's probably one of the sharpest periods of upside demand that the state of California has realized in eight or nine years.

Q. Why do you predict such a strong demand for housing?

A. In addition to growing demand from new household formations and new employment this year, we're also going to be dealing with at least three or four years of pent-up demand from people who have been postponing decisions. So we're going to see increasing demand and, unlike past cycles, there is virtually no unsold inventory in the California new-housing market. In past periods of contraction, the building industry had some inventory of unsold housing to sell off.

But in this recession, unlike others, two things occurred. First, builders put down their hammers and nails in 1989 and have been loath to pick them up, mostly because of a lack of financing. The second is the engineers, the land planners and the developers put down their pencils and stopped drawing as far back as 1989, so there's been a curtailment on planning on projects, so there is going to be a bubble in the supply pipeline.

Q. So, you are predicting a statewide housing shortfall of more than 300,000 units for this year alone. How would that likely happen?

A. During the decade of the 1990s, we've been gaining households at a rate as great as 200,000 per year, while we've only been building new housing units at a rate of less than 100,000 per year. So for each of these years, there is an accumulated deficit of new-housing supply. In addition, there is a phenomenon of people doubling up in record numbers in California over the past few years. Many young people have moved back into their old homestead, so the bonus room has become the boarding room. Now, more and more of these young people will be emerging from the cocoon, and will place additional demand on the housing market.

Q. But what does this potential housing shortfall mean for this year's home buyer?

A. We're going to see substantial increases in the price for dwellings in California. That includes rental as well as resale, and especially new-housing prices. More than likely, we will see prices start to go up by the end of the year. I think they firmed last year. Anecdotal evidence shows that at the bottom of the resale market there are multiple offers (to buy a single home) now and more homes are selling above or at listed prices. There is a mini feeding frenzy that's going on.

Q. We've talked about higher home prices and stronger demand, but what about mortgage rates?

A. Mortgage rates will stabilize at about 8.25% through the end of the year. I think interest rates will stay flat and then may dip back down and go up by next year.

Q: You have said last year was the best year to buy a home. Why?

A. Well, next year, this year will be the next-to-the-best year to buy a home. What happened was last year we were in the trough. The market remained soft, and homes were being offered to buyers at record-low profit margins. In addition, we had interest rates at an all-time low. So with these combination of factors, last year was a once-in-a-lifetime opportunity to buy a home.

Q. What do you see happening to Southern California land values?

A. Land in Southern California in preferred locations is a finite commodity, and it is disappearing. Right now, you can still get your choice of good values in new detached housing. I work on projects that are 10 years out, so I have to look at what the supply is going to be five or seven years from now. I can tell you it is diminishing. And yes, there will be alternatives in housing and I can tell you it will not be conventional detached houses.

Q: What will replace the conventional detached home in Orange County?

A: Land values are being driven higher, so the cost of producing the detached home is going up. Builders are trying to become more efficient with the available land. So what's happening is we're going from living on five units per acre to eight to 10 units per acres to very shortly 15 units per acre in detached homes; that is, a single-family home with its own small yard and two-car garage.

I'd say this is the tail end of suburbanization in Orange County. About the second half of the decade we will begin the urbanization process, where we make the great leap forward to subterranean parking and living densities of 25 units per acre.

Home-Buying Tips

Kenneth W. Agid gives the following advice to anyone contemplating a new home purchase in Orange County:

1. Hurry! Don't sit and ponder the future. California is in the early stages of a major economic recovery. You have three to six months, at most, before the best bargains disappear.

2. Don't close your mind to "alternative living" environments before actually visiting the new products. Today, many attached homes offer more privacy than comparably priced detached houses. Cluster housing products and small-lot single-family developments represent some of the most innovative new housing concepts.

3. Be sure to include resale homes in your search. The new home industry is having trouble competing with its own products built in the past, in terms of location, quality, size and features of the house. Don't be myopic in your thinking.

4. Consider location. Look for an area offering a reasonable commute to work, shopping, schools and recreation areas.

5. Look for a master-planned community that offers a variety of housing, nearby shopping, typically better schools and recreation. Most important, look for areas which have "character and personality," and are not merely a tract of look-alike houses. These are locations that will retain their value.

Source: Kenneth W. Agid, The Marketing Department;

Researched by DEBORA VRANA / Los Angeles Times

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