Slowing--Not Drop--Seen for Real Estate

The gyrations on Wall Street may help slow--but not stop--the past year’s soaring pace of home sales and prices in Southern California, real estate observers said Tuesday.

There were no signs that substantial numbers of home buyers or sellers had postponed deals as a result of the last week’s turmoil on Wall Street, agents said.

However, in the long run, concerns about the faltering financial markets are expected to combine with other factors to eventually result in much more modest real estate activity in the coming year, according to economists and other housing observers. The sale of mansions and other higher-priced homes could be the first to suffer if continued financial instability and depressed stock prices make wealthy home buyers think twice about a home purchase, some real estate experts said.

“Home prices are not going to see the rapid gains seen in the last year,” said Esmail Adibi, director of the center for economic research at Chapman University in Orange. “The severity and the duration of the correction will determine the impact on the real estate market.”

But even before the financial markets started to swoon, there were increasing signs that Southern California’s housing market was bound to cool. The Asian financial crises and a slowdown in the national economy, for example, had been expected to eventually take their toll on the regional economy and home sales.

Maybe the current Wall Street uncertainty “will take some of the froth out of the housing market,” said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp., but he and other experts do not expect home prices to start falling as a result. They point out that mortgage rates remain low, and thus some investors may decide to shift their funds out of stocks and into real estate.

Many also recall what happened to Southern California real estate after the October 1987 stock market crash.

“It was the start of the biggest boom we had in real estate in 20 years,” Los Feliz real estate agent Richard Stanley said. “Go figure.”