Riot will tip the scales of housing prices.

Demand in secured areas to rise; South L.A. prices will fall

Single-family homes prices will likely drop in the areas directly hit by rioting, industry sources confirmed last week. But home prices in unaffected areas on the Westside and in outlying areas will likely rise, as homebuyers place new premiums on safety, and start expecting steeper discounts for homes in "unsafe" areas.

Also, houses located within guard-gated communities are expected to enjoy increased demand, and prospective buyers will also likely begin placing greater emphasis on moving into communities where neighbors look out for one another.

"Put simply, house prices will probably go up in Santa Monica and Palmdale, and go down in South Los Angeles," said David Hensley, director of the UCLA Business Forecasting Project. "The pattern of homebuyers moving to outlying areas, which had recently begun to reverse itself somewhat, may very well be re-established by this (rioting)."

During the 1970s and '80s, inner-city residents migrated in droves to outlying areas in the Antelope Valley and Inland Empire, areas perceived as cleaner, safer and equally affordable to the inner-city neighborhoods.

But many of those inner-city transplants had recently been burning out on the two- and three-hour commutes into work, sources said. And they were starting to move back to the inner-city neighborhoods of their youth.

Outlying-area residents were also being enticed back to the central city by low-interest home loans and a sizable inventory of affordably priced homes.

But three days of violent rioting will likely halt that return in-migration, as well as spark a whole new wave of migration to outlying areas, sources speculated.

Meanwhile, residential lending institutions, with added support from various government agencies, are expected to ease their inner-city mortgage lending practices in the months to come.

"Even before the riots, lenders were being pressured to increase their residential lending activities in the inner cities," said Howard Levine, chairman of the Home Mortgage Disclosure Act Task Force, a group charged with discovering and analyzing reported discriminatory lending practices.

"Now you'll see some very aggressive lending programs, as lending institutions and government agencies introduce a bunch of new programs to support housing in the inner cities."

Another reason that lenders will likely be easing their inner-city mortgage requirements is because quasi-governmental agencies like "Freddie Mac" and "Fannie Mae" are becoming increasingly willing to buy such mortgages in the secondary market, said Levine, who is also president of Arcs Mortgage Inc. of Calabasas.

The Federal Home Loan Mortgage Corp. (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) buy bundled mortgages from lenders and then resell them to investors. Those agencies have had stringent requirements on the types of mortgages they would buy, but now those requirements are being relaxed somewhat.

Most mortgage lenders had not changed their loan-to-value requirements for new home loans as of last week. But representatives from several banks went on "fact-finding missions" last week to riot-affected areas, and began announcing various subsidized loan programs.

Mid-Wilshire-based Aames Home Loan, which has many customers living in riot-affected areas, reported it is developing various loan products to address area residents' needs.

Aames Chairman and Chief Executive Gary Judis said his company is also expecting a surge in demand for home-equity loans.

"With all the unemployment created by these riots, people will need money to tide them over," Judis pointed out. "So I expect we will see quite an uptick in our home-equity loan business."

Industry sources were much more unsure about what long-term effects the rioting might have on Los Angeles County home prices. The actual impacts will not be known until after actual sales figures begin trickling in during the next few months.

Housing, probably more than any other industry, is driven by consumer perceptions. And those perceptions, as viewed by millions of media watchers around the world, were devastatingly negative during the three days of rioting.

"At the macro level, if perceptions about L.A. have shifted dramatically, local property values could be driven down across the board," said UCLA's Hensley. "I'm not forecasting that; it's too early to get a real read on the outside world's perception of L.A. But it's certainly one possible scenario."

Other industry sources insisted the riot's negative impacts on the housing market will be short-lived.

"There's no way this rioting can be viewed positively," conceded Gloria Shulman, president of Crestview Financial Group of Beverly Hills. "But I don't think it's going to spark a mass exodus or panic selling."

Levine of Arcs Mortgage added: "I think you can compare this to other disasters L.A. has suffered. People said everybody was going to leave after the Sylmar earthquake. A few people did pack their bags and leave; but three or four weeks later, it was business as usual. I'm much more concerned about the negative impact of California's tax structure and environmental regulations than I am about these riots."