Housing industry sees glimmers signaling possible end to slump: some report sales leaping but hard data isn't in yet.

Housing industry sees glimmers signaling possible end to slump

More evidence surfaced last week that Los Angeles County's 20-month housing slump may indeed be nearing an end, but regional economists warned against popping the champagne corks just yet.

"Anecdotal evidence suggests that home sales have picked up recently, fueled by cut-rate pricing of new homes sold by distressed builders who need cash," stated the UCLA Business Forecasting Project's quarterly report, released last week. "However, conversations with builders and lenders suggest that any rebound in housing construction is some months away, given the reluctance of financial institutions to fund new construction."

The anecdotal evidence has indeed been mounting in recent weeks, but most of that testimony is coming from those with a vested interest in seeing the housing market rebound.

"We've seen a remarkable and steady increase in activity since January, from open-house traffic, to offers written, to sales made," said Rick Merritt, president of The Prudential California Realty. "It's not a sellers' market again, or a booming market, but it's a return to a more healthy, normal market."

Merrill estimated that Prudential's first-quarter statewide home sales will be up 47 percent from the prior quarter. The company has seen its biggest surge in West Los Angeles, where sales are up 70 percent from last quarter, Merrill said.

Merrill is just one of a growing army of local title executives, real estate agents, home builders and residential property lenders who have lately been proclaiming the end of the housing slump.

"We've seen a dramatic pick-up in sales the past couple of months among the builders we deal with," said Howard Roth, chief economist for Security Pacific National Bank, a local property lender. "The pick-up in sales started with discounting on new housing, but now developers are cutting back on discounts because the sales pick-up has been so great."

The actual numbers contradict Roth's sunny outlook, however.

Both the total number of mortgages recorded in Los Angeles County, and the total value of those mortgages has continued to decline, according to TRW Real Estate Services.

Specifically, 23,863 mortgages worth a total of $3.71 billion were recorded in L.A. County last month, compared with 25,178 mortgages worth $3.44 billion the month before representing a 5.2 percent decline in the number of mortgages recorded.

That decline becomes even steeper, 22.5 percent, when compared to the year-ago period.

Industry optimists argued, however, that the latest recorded mortgage statistics of February do reveal a surge in activity that has taken place since the end of the Persian Gulf War.

March statistics on recorded mortgages will not be available for another three weeks, said a spokeswoman for TRW Real Estate Services.

The only hard data out, as of press time to support the waxing anecdotal euphoria was a report released last week by the Meyers Group, a local real estate research firm.

That report stated new-home sales were up 57 percent in the San Fernando and Santa Clarita valleys for the three-month period ended March 15, compared with the prior three-month period.

But even Stephen Smiley, manager of the Meyers Group's local office, admitted that percentage increase was caused as much by a dismal fourth-quarter performance as by a current-quarter surge - in effect, the gain was against an especially rotten period.

"When you're comparing these numbers to last quarter, they look wonderful," Smiley said. "But compared to a year or two ago, they don't look great."

What may be more encouraging is the improvement in the ratio of new-home sales to unsold inventory.

As slightly more new homes are sold, and fewer new ones are built, the inventory (supply) of new homes comes closer to existing demand. And that helps to stabilize prices.

In the Santa Clarita Valley, for example, 116 homes were sold during the fourth quarter of 1990, and the inventory of unsold homes stood at 741. In other words, a 6.4-month supply of new homes stood on the market at that time.

In the latest quarter, however, 289 new homes were sold there and inventory stood at 617 unsold homes. That inventory taking into account the quickened sales pace, represented a 2.1-month supply, clearly an improvement from the 6.4-month supply sitting on the market the quarter before.

"What you're looking for is a one-to-one relationship between new-home sales and existing inventory," Smiley explained. "That's when you're going to see builders coming back to sink more money into new projects again."

Meanwhile, several local title insurance companies, which perform title searches on homes in escrow, reported that their business has also increased since the war's end.

"We've seen an increase in total order volume in the 10 to 12 percent range for the past 30 days, compared with the prior 30 days," said Doug Minor, executive vice president of Glendale-based Lincoln Title Co.

Title company executives insisted their rise in business is coming at least in part from home sales, but no statistics are yet available to support those reports.

Statistics that are available, in fact, show that a vast and increasing majority of property loans being processed in Los Angeles County are refinance loans.

More than 70 percent of the mortgages recorded in L.A. County last month were refinance loans. Only 23.4 percent were resale home mortgages and just 2.17 percent were new-home mortgages.

Unlike resale or new-home loans, refinance loans do not directly contribute to improving the current housing slump. They merely allow homeowners to exchange high-priced mortgages for lower-priced ones, or allow them to pull the existing equity out of their homes.