High-Priced Homes Again Face Test in West Covina.

It's been a decade since developers pulled back from their audacious plan to develop $1 million homes in the middle-class enclave of West Covina. The reason was bad timing, because a major recession was descending on the local real estate market.

Now, those efforts are underway again. And again, the timing seems less than favorable, with economic growth slowing and prospects of at least a mild recession on the horizon.

As many as 200 luxury homes are being developed in the tony South Hills area of West Covina. And even though developers have significantly reduced the previously anticipated $1 million asking prices to the $525,000-to-$716,000 range, industry observers say the homes will likely sit on the market far longer than they would have a year or two ago.

"We're seeing a softening at the very top end," said Dean Wehrli, managing director of the Meyers Group, which researches the new-housing market. "They are going to absorb slower than a $300,000 home. If there is a hard landing, you could see (developers) lowering prices."

The average cost of a house in West Covina remains at $200,000 -- far below the price range for the South Hills area, a planned hilltop community that's been partially developed but largely vacant for more than a decade.

But developers are nevertheless targeting the high-end market in a big way.

Carlsbad-based Ryland Homes is putting up 43 single-family homes priced between $525,000 and $609,000 on a 22-acre tract of land in South Hills. Centex Homes, based in Dallas, is developing 59 units priced between $575,000 and $700,000. Rielly Homes, a division of Honolulu-based Schuler Homes Co., is constructing 58 homes priced between $585,000 and $716,000.

Norman Cox, regional managing broker for Coldwell Banker Town & Country Realty, predicted that total home sales in the eastern San Gabriel Valley and western Inland Empire would drop by 4 percent in 2001. Furthermore, $1 million homes that would have taken four to eight months to sell a year ago might now take 12 months or longer to sell, he said.

"I don't think it will be backbreaking the way it was in 1991, when the market just collapsed," said Cox. "They'll sell, but it will take a little longer than it would have last year."

Hilltop action

The new development rises above the leafy South Hills Country Club on Citrus Avenue, a few miles south of the San Bernardino Freeway and past older, well-kept homes that have risen sharply in value since 1997.

Amid the clatter of workers' hammers and muddy, unpaved roads, salespeople are busy trying to entice would-be homebuyers with elaborate floor plans and lavish hilltop views of the often-smoggy San Gabriel Valley.

And they are getting some help from external forces.

Mortgage interest rates, which hit the double digits a decade ago, are now teetering around 6.5 to 7 percent, depending on the buyer's payment schedule and credit rating. And Federal Reserve Chairman Alan Greenspan has hinted that he might cut rates by an additional half point when the reserve board meets in March.

In addition, commercial real estate has just come off its third consecutive record year, with more than 1 million square feet leased in the San Gabriel Valley.

"It's a good indicator that the demand for housing is still there," said Ron Heim, a senior vice president at Trammell Crow Co. "As long as the interest rates stay low, you're going to have demand."

Some agents point to an influx of new money into the San Gabriel Valley, mainly from Asia, which they say will support demand for more expensive homes like those in South Hills.

West Covina, known as a sleepy, working-class suburb of Los Angeles, has had its share of troubles, however. For nearly two decades, its redevelopment plan was hampered largely by publicity surrounding the notorious BKK landfill. The toxic dumpsite, located less than two miles from South Hills, was at the center of lawsuits and counter-suits filed by the city and BKK involving its closure.

Landfill transformation

Although most of their evidence is anecdotal, local officials now believe that the BKK controversy drove away potential homebuyers and slowed residential development, including South Hills.

West Covina-based BKK Corp., which owns the dumpsite, finally agreed to close it in 1997. Since then, city officials have approved a plan to build a business park and an 18-hole golf course on the site, which partially overlaps into the city of Walnut.

West Covina "has pretty much approved the plan. We're just waiting for it to get off the ground. It's basically a done deal," said Christopher Chung, the city's redevelopment director. BKK is spearheading the redevelopment.

But even if the BKK project moves forward and a recession never materializes, the South Hills area is unlikely to become the enclave of million-dollar homes it was originally envisioned to become.

"These aren't exactly million-dollar homes they're building," said Tony Wu of Long Dragon Realty.