BOOM AND BUST CYCLES; HOME PRICES, SALES HAVE HAD THEIR UPS AND DOWNS.

Byline: Gregory J. Wilcox Staff Writer

The last two decades illustrate one harsh truism about the San Fernando Valley's housing market. Before it can go boom, it's got to go bust.

Or vice versa.

As both 1980 and 1990 dawned, a thunderclap of a bust rattled the market. While different in origin, they shared the common dominator of being in part politically driven. They came to the same kind of general conclusion, too, with the market making a strong recovery by the end of each decade.

When the 1980s began, the nation still suffered a hangover from its guns and butter economy of trying to win one war in Vietnam and the other domestically against poverty.Prices for all kinds of goods, including housing, kept rising.

In the mid 1970s the average price of a house in the Valley was in the $58,000 range with appreciation about $6,000 to $10,000 annually.

Then the cork popped and prices took off, making annual jumps of about $20,000. Sales, too, were on a strong growth curve, hitting 19,600 units by 1979.

The economy was indeed overheating, so Paul A. Volcker, then chairman of the Federal Reserve Board, stepped in. He was used to the heat. Volcker had already made one historic economic move: In 1971, as President Nixon's top monetary official at the Treasury Department, he conceived the idea of floating the dollar, which kept the international monetary system from imploding and gave the world flexible exchange rates.

By late 1979, he was the Fed chairman under President Carter, a period when a key campaign slogan had been ``Whip Inflation Now.'' Volcker implemented the most monetarist policies in memory. This philosophy is based on the premise that if the money supply is kept tight, everything else will work itself out.

So Volcker shifted the Fed's focus from interest rates to the money supply. He let the market set the interest rate but clamped down on the supply of money from the Federal Reserve.

It was not a popular move.

The prime rate, the interest the Fed charges for overnight loans, eventually hit 21.5 percent and the nation slid into consecutive recessions.

``What killed the housing market in '82 and '83 was a real deep recession and lenders simply were not lending because the cost of money was too high,'' recalled Jim Link, executive vice president of the Southland Regional Association of Realtors. ``The Fed said, Enough is enough, we're shutting off the money supply, and the market literally ground to a halt overnight.''

Michael Carney, head of the Real Estate Research Council at California Polytechnic University, Pomona, said Volcker's policies are still paying dividends today.

``He was a hero,'' Carney said. ``We had rampant inflation then. We are the beneficiaries of all that at this point in time. The reason we have close to zero inflation now starts with Paul Volcker in 1979.''

Nevertheless, those actions put the Valley's housing market in the tank.

Sales plunged to 6,500 units for all of 1982 from the peak of around 20,000 in 1979.

This was also the time of a major shift in the philosophy for buying a home. Before the late 1970s, people bought homes with the idea of living in them long enough to have a career and raise a family. When prices started soaring, buying a home became a way to score some quick cash.

Interest rates may have been high, but if the price of housing outstripped the rate of inflation, it was still a good investment.

By 1983, inflation was under control and sales again took off, nearly double the 1982 level to 11,000 units, and prices hit the $142,830 range.

The housing market remained strong through the end of the 1980s, when it was again roiled by political events, this time half a world away. The Soviet Union collapsed and the Cold War ended.

That development rocked the aerospace industry, which had been a major component of the Valley's economy for decades.

And it triggered what turned out to be the deepest economic slump for the region since the Great Depression. The crisis was so severe in California that some economists said it actually pulled the entire country into recession.

``You have a situation like we had not seen before. You had competitive interest rates and you had a decent supply of housing on the market but because the job market was so cloudy, the sales were just not there,'' said Link.

Sales fell, but not like they did at the start of the 1980s.

This time prices took the huge hit.

The median price had hit $245,000 three time in 1989. But it had slipped back to the $220,000 range by mid 1992.

And then it went into a free-fall as prices eroded for 43 consecutive months.

Part of the reason was that they had just gone too high, too fast.

A lot of economists said housing prices were over-inflated so the price decline was just a natural correction. At any rate they did not start rebounding until early 1997 and have been gaining ground ever since.

Now, with the start of a new decade less than two months away, might there be some calamitous economic news lurking just behind Jan. 1, 2000?

As with the start of the last two decades, no one can say for sure.

``I don't see anything specific that's likely to slow us down,'' said Carney at the Real Estate Research Council. ``But nobody forecast these other events either. There is going to be unanticipated shock - I don't know what it's going to be or when it's going to happen.''

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Photo

Photo: Housing prices rebounded in 1997 and have been gaining ever since.

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