TODAY’S YOUNG PEOPLE HAVE WITNESSED THE REAL ESTATE DOWNTURN AND MANY HAVE DECIDED TO STAY IN RENTALS BECAUSE THEY’VE DEVELOPED. . . : Fear of Buying

There was a time when nothing could have kept Andy and Jennifer Branin from owning a Southern California home.

Young professionals--she a financial adviser, he an accountant--who met at Club Med four years ago, the couple have saved plenty of cash. And last month they became prime candidates to buy their first home when they had Tyler, baby No. 1.

Still, the Branins keep renting--at $1,390 a month for three bedrooms in Irvine. And what about the supposed dream of having a house of their own?

“It’s an asset that’s hard to sell, and it limits your flexibility,” said Andy Branin, 40. “For now, we’ve elected to sit on the sidelines. You’re not going to buy for $200,000 and sell for $400,000 these days.”

Owning a Southern California home used to offer young people security, stability and--in the 1970s and ‘80s--spectacular investment returns. But for many young people and families today, there is only fear of a financial albatross.

Although mortgage rates are at some of the lowest levels and homes are the cheapest in a decade, prospective first-time buyers also know that a crippling real estate downturn here has left hundreds of thousands of Californians saddled with homes they can sell only at a loss.

Some young people now display unusual fondness--or at least tolerance--for living in rental apartments, shaking the foundation of Southern California developers whose entry-level residences were viewed as a first step in a lifetime of home ownership.

“The whole psychology of home buying has changed,” said Joseph G. Carson, chief economist with Dean Witter Reynolds Inc. in New York. “The house has changed its character from piggy-bank to one of shelter. People know it’s an asset that’s not going to appreciate like their parents’ house did. This is especially true in California.”

In 1988, there were 177,615 first-time buyers in Southern California, constituting 53% of those purchasing homes. Last year, the number had plunged to 101,183, or 49%.

Statewide, although first-time buyers have grown steadily as a percentage of the market, experts say that’s largely because current owners aren’t moving up as often to bigger, more expensive homes.

Lifestyles and reduced job security could continue to affect the market. Couples now tend to get married later and, focused on careers and the shifting fortunes of the job market, prefer staying mobile to the chain-like tug of monthly mortgage payments.

Frank Concannon, 36, and his wife, Piedad, 39, rent an Irvine apartment because they don’t want to be tied down. Concannon takes a lesson from a friend who bought a Corona home last year that has already dropped in value. Now, his friend is being transferred to Arizona and must sell his home at a loss.

“If you buy a house and have to move, you could lose a lot of money these days,” said Concannon, an accountant with Bergen Brunswig Corp., a pharmaceutical distributor in Orange. “This really is a troubling time. Jobs are uncertain and so is real estate.”

What’s more, despite massive price declines that make houses more affordable than in past years, California homes are still beyond the reach of many young people.

More students emerge from college saddled with burdensome student loans and credit card debt; they face lower-paying, entry-level jobs and more temporary positions that make buying difficult.

Adding to anxiety is talk in Washington of a “flat tax” and elimination of the home mortgage deduction, with the possibility that home prices will tumble further as decades-old financial incentives are yanked.

“The investment motive for buying a home in California is much weaker than it used to be,” said Anthony Downs, senior fellow at the Brookings Institution, a Washington think tank. “It’s really just a lifestyle choice now and maybe a good way to force yourself to save some money.”

Ask Tracy Orloff of Santa Monica to imagine buying her first house, and the 30-year-old health benefits consultant cringes.

“I know it’s silly, but when I think of a home, I think of bankruptcy,” she said. “I think of people losing their jobs and not being able to pay these huge mortgages.”

Although she could afford an entry-level home, Orloff elects to continue renting a Santa Monica apartment. “For now I’m going to stay a road warrior--a renter,” she said.

When younger people do buy--and, of course, legions still do--many are going after existing homes, real estate agents said. Eighty percent of first-time buyers in Orange County last year bought used homes, up from 73.8% in 1988, according to an annual nationwide survey by Chicago Title and Trust. That number declined slightly in Los Angeles County, driven by the boom in new homes in Lancaster and Palmdale, real estate agents said.

With the first-time new-home purchase losing its allure, Southern California’s developers are scrambling to develop new strategies.

Kaufman & Broad Home Corp., the largest builder in California, has been especially hard hit by disappearing first-time buyers, with the company reporting poor earnings this year.

Discussing the problem at a recent real estate conference, Kaufman chief executive Bruce Karatz said current economic conditions, especially a non-inflationary environment, keep home prices down, which “makes for a more solid apartment market.”

“Housing demand for the next couple of years will remain at levels at what they approximate now,” Karatz said. “There is no reason to get depressed about that. It’s something very real and we have to deal with it.”

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Even in Orange County, where builders are accustomed to satisfying the home buying appetites of higher-income, upwardly mobile young couples, master developer Donald Bren of the Irvine Co. is emphasizing new apartments rather than entry-level housing.

His Irvine Apartment Communities, which already has 48 apartment developments in Orange County, is building 2,200 more apartments. Many of those are designed to attract two-career, upper-income couples like the Branins who in the old days would have been homeowners.

The apartments will feature high-end appliances and on-site day care, dry cleaners, recreation and business support facilities such as photocopying and secretarial services.

“We are very frustrated. We have made substantial efforts to make affordable-for-sale housing available to first-time buyers,” Bren said. “Prices are very reasonable. And financing is both cheap and readily available. But the market for these homes remains very soft.”

The potential pool of novice buyers leaves developers less than optimistic. The number of people between 25 and 34--who constitute the majority of first-timers--is expected to decline from 17.4% of the U.S. population in 1990 to 13.6% in 2000, according to Federal Reserve Board projections.

Noting the range of worrisome trends, Culver City-based builder Jona Goldrich plans to build more than 400 apartments on Los Angeles’ Westside next year.

“It used to be a couple got married and right away they wanted a house because you couldn’t go wrong with a house in California,” Goldrich said. “Now, with this market, they want to wait. So they rent longer.”

A California home once was considered the best investment young people could make, and couples and even singles were eager to dive into the market. Double-digit annual increases in home values during the 1970s and ‘80s--driven by the combination of high inflation and low mortgage rates--became a route from middle class to the landed gentry.

Deregulation of the financial markets, though, meant mortgage rates would march largely in lock-step with inflation. If inflation was up, buying a house could no longer be done with a cheap mortgage subsidized by low-interest savings accounts; if mortgage rates were low, inflation would be moderate too--meaning housing prices weren’t likely to be escalating much in price.

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Overbuilding and Southern California’s economic setbacks also have taken a heavy toll.

Home values in the region have dropped an average 21.7% since 1990, with Orange County prices dropping nearly 19% and Los Angeles homes off nearly 25%, according to La Jolla-based Dataquick Information Systems.

And this year Southern California home values are down another 5% from last year.

Michael Carney, a real estate expert who teaches finance at Cal Poly Pomona, said he likes to ask his students this hypothetical question: “Would you buy a California home, if you could be assured it would keep its current value and never increase or fall below?”

“And the answer from my students is always no,” Carney said. He then asks: Would you buy a car that will decline in value as soon as you buy it?

The students always say yes.

“People have this mind-set that a California home is something you make a lot of money on,” Carney said. “But if you think about it, why shouldn’t it be any different than any other asset?”

Brad Glover understands.

The 35-year-old who owns his own business would rather roll the dice on Wall Street than take his chances on a Southern California home.

“At my age, I’d rather put my money where I’m going to get the greatest returns,” said Glover, who rents a Studio City apartment although he can afford a house.

“With a home--what if there is an earthquake and then you lose your nest egg? And what if you want to change jobs and move away? Or what if you get divorced? What then?”

Stocks, with their sharp run-up since the late 1980s and the ease of buying and selling, now look more alluring to some people than the financial commitment and uncertainties associated with home ownership.

For the first time in a quarter-century, Americans have more wealth tied up in individual stocks and mutual funds than in residential real estate, according to the Federal Reserve.

While ever-upbeat California real estate agents suggest that lower prices mean now is an ideal time to buy, Southern California home sales during the first nine months this year were down 12% from 1994.

Dave Liniger, 50, co-founder of the giant brokerage RE/MAX International Inc. in Denver, knows his brokers are having a tough time getting potential buyers like Glover and the Branins off the fence.

“Unlike my generation, who bought a home as soon as they could because they thought houses could only go up in price, this younger generation knows value doesn’t always go up,” he said. “This is a trend we’ve never seen before.”

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Pacific Stock Exchange trader Edward Stewart, 33, and his wife could easily come up with the down payment on a high-priced home. But the two continue to rent an apartment in Los Angeles’ Westside.

The couple have been looking at homes for nearly five years, reading the real estate section on Sunday and going to open houses on most weekends. But “the more I look, the more I decide to just wait,” Stewart said. “There are an unbelievable number of houses on the market, and the values are so bad.”

Stewart said he and his wife have found better places to invest their money.

“I’ve always looked at real estate as a flat investment. I think it is a terrible way to spend that much money.”

The latest cloud over housing as an investment is the prospect of changes in the income tax, creating alarm throughout the real estate industry.

The flat tax, which would eliminate most deductions, including the mortgage deduction, could further erode the benefits of home ownership.

“This is a serious and real threat,” said Stephen Driesler, chief lobbyist for the National Assn. of Realtors. Although the flat tax’s prospects are uncertain--and Driesler predicted that no vote on it is likely for two years--he cited a Realtors’ association study predicting California home values would drop 23% if the mortgage interest deduction is eliminated, compared with 15% nationwide.

“Homeowners, especially in California, should take this seriously,” he said.

Still, real estate professionals haven’t shed their traditional optimism, pointing to the long-term trend in rising California home values.

“Buyers are waiting for the ‘show me’--like show me a line going up the chart that says my house will increase in value,” said Kenneth Agid, an Irvine real estate consultant. “Right now, there is no existing evidence that investing in California is a viable place to put your money anymore. But once there is, people will get a new religion about housing.”

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Buyers Back Off

The number of homes sold in Southern California for less than $175,000--an indicator of first-time buyers--has been steadily dropping since 1988. Although they climbed slightly in 1994 when the real estate market rebounded, sales through the first nine months of this year indicate a fall-off.

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Equity Flow

For 20 years, beginning in 1973, Americans had more equity in real estate than in stocks and mutual funds. But recently the gap has been closing. This year investments in securities are expected to outpace real estate by $355 billion. Equity in billions of dollars:

1970

Stocks and mutual funds: $613

Real Estate: $592

1995 (Estimate)

Stocks and mutual funds: $4,855

Real estate: $4,500

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Declining Home Values

Double-digit declines in home values over the past five years throughout Southern California have caused many would-be buyers to postpone buying a home.

Third quarter percent decline 1990-1995:

California: -16.8%

Southern California: -21.1%

Los Angeles: -24.4%

San Bernardino: -19.3%

Orange: -18.3%

Ventura: -17.9%

Riverside: -17.7%

San Diego: -13.5%

Sources: Dean Witter Reynolds Inc., KPMG Peat Marwick, TRW REDI Property Data; researched by JANICE L. JONES / Los Angeles Times