The New Reality in Real Estate : Housing: The years of double-digit rises in home values are over. Some experts predict a slight rebound within a few years; others see a prolonged stagnation.

Sedric (Pete) Anderson stands to make a killing in the California housing market. He figures that his home in posh Palos Verdes--bought 18 years ago for $65,000--is now worth nearly $700,000.

There’s one problem: Now that Anderson wants to move to Santa Maria on the rural Central California coast, he cannot sell his house for the price that he wants, despite half a year of trying. “We’re not in a hurry or a panic,” said Anderson, 63, a retired electrical engineer. “We’ll wait it out.”

If he’s not willing to cut his asking price, Anderson may have a long wait.

A swelling number of prognosticators are challenging conventional wisdom and warning that the state’s housing market may not rebound as well from the current downturn as it has from recessions in past decades.

This group argues that fundamental changes under way mean the end of sustained price inflation in California residential real estate--the inflation that drove up housing values at an 11% average annual rate in the 1970s and 1980s. California’s tarnished allure, along with its changing economy and population, are often cited as reasons for the changes.

Some are even predicting that housing prices will fall throughout the 1990s. If true--and the point is hotly contested--the effect will be continued trauma for property owners who have been counting on their growing home equity to finance their retirements or fund their children’s education.

It would also be disastrous for recent buyers, who stand to lose part or all of their down payments if property values continue falling, and for professional real estate investors whose livelihoods would be wiped out by enduring price drops.

Even the sunniest economic analysts today concede that the days of those sustained double-digit increases are over, even though the state’s population is expected to continue its fast growth in the 1990s.

One very likely development is that the higher-income, “move-up” market--where houses cost more than $300,000--will not bounce back well because of limp demand, while affordable homes will remain hot items throughout the 1990s.

George Marotta, a financial planner and research fellow at the Hoover Institution in Palo Alto, is among those who believe that the halcyon years in California real estate are over. “I look for a long period of stagnating (property) values,” he said.

One day 1990 will be regarded as the year the state’s postwar real estate boom came to an end, Marotta said. “When people look back, they’ll say: ‘Why didn’t we see that coming?’ ”

California’s eroding quality of urban life, namely its growing crime and congestion, and steep job cuts in the defense industry are the major problems, Marotta and others argue.

“It’s not the California dream of 30 years ago,” said David Shulman, an ex-Californian who’s now chief real estate analyst for the investment firm Salomon Bros. in New York.

After adjusting for inflation, California home prices may fall as much as 2% annually, Shulman said in a phone interview, noting: “In that sense, the party is over.”

The new arrivals to California in the 1990s--many of them immigrants from Latin America, Asia and Eastern Europe--are not expected to be as affluent as the newcomers of previous decades. They will need lower-priced houses, not the higher-priced houses in the move-up market, real estate experts say.

“The move-up market is spent,” said one financial adviser in Orange County, where high-priced homes abound.

The conventional wisdom among economists and brokers in California is that the real estate market will return to robust financial health within two years. According to this argument, long-term housing prices will rebound because of the state’s diverse economy, continued population growth and dwindling supply of buildable land.

“It’s total bull” to think California housing prices are in for a long-term decline, said Kenneth Rosen, chairman of the Center for Real Estate and Urban Economics at University of California, Berkeley. If inflation averages 5% in the 1990s, Rosen said, typical home price increases should average as much as 7%.

The real estate market has a bright future, Rosen and others contend, because the state’s population may swell by 8 million by 2000. California’s population grew to 29.8 million in 1990 from 20 million in 1970.

Real estate boosters also point out that houses will continue to be stellar financial investments when the benefits of tax breaks and leveraging are figured in. (Because most homeowners borrow heavily to finance their homes, even small rises in property values mean healthy returns on down payments.)

Whatever happens in the long run, today’s depressed housing market has already played havoc with many of the state’s 5.7 million homeowners, whose visions of easy living and easy profits have been badly blurred by the market downturn.

Since housing prices in California peaked in 1989, values have routinely fallen as much as 25%--and may fall as much as 40% in high-income neighborhoods before the market hits bottom, real estate experts say.

The slump, which began after three years of white-hot price increases, has particularly hurt homeowners who bought within the past 18 months. They face losing much or all of their down payments if they have to sell.

“For them the market has really hurt,” said Mitchell Keil, a financial adviser in Irvine.

Real estate investors have not done well either. One speculator, Dennis Light, took a huge financial bath last year when he tried to sell a house in West Los Angeles for $1.1 million and ended up getting well under $800,000.

Those who have retired or are about to are another large group whose plans have been disrupted by the downturn. “A lot of people made their retirement plans predicated on their real estate,” noted Stephanie Enright, a personal financial adviser in Torrance.

Homeowners such as Sam Winner, Buena Park’s fire chief, now find themselves in limbo because of the market uncertainties. “If the (real estate) market goes to hell, I won’t be able to finance the lifestyle I want,” said Winner, who is retiring next month.

Geologist Fred Donath is getting hit from both directions. He cannot find a buyer for his condominium in Long Beach and has seen the market value of his new retirement home in south Orange County plunge.

Donath, 59, has gradually cut the price on his condominium, in a gated community near Cal State Long Beach, to $279,000 from $319,000 last summer. But he has found no takers.

Meanwhile, he was one of the first buyers in a new housing tract in San Clemente, where he bought a home for $315,000 only to see homes built after his--in the same tract--go at auction for $60,000 to $70,000 less.

“Buy high and sell low,” said Donath, a former college professor. “Just the opposite of what you are supposed to do.”

Houses that are selling have had their prices slashed--often at the urging of real estate agents who stand to lose their sales commissions if their clients do not realize how much their property values have fallen.

“I come in and tell them: ‘You’ve got to get realistic,’ ” said David Carden, a Century 21 agent in Long Beach.

Anthony J. Host, a 41-year-old chemist in San Marcos, near Oceanside, finally sold his four-bedroom house in La Palma recently, but only after cutting the asking price to $215,000 from $249,000.

“I consider myself fortunate,” Host said. “I’m just glad I got out.”

Until the most recent slump, California homeowners had generally feasted off soaring property values, particularly if they had owned their homes a long time and lived in attractive areas.

The land inflation had been fueled mainly by a buoyant economy, pleasant lifestyle and rapid population growth. The downturns of the 1970s and 1980s were replaced by explosive booms.

California had two bouts of real estate hyper-inflation in the past two decades--one from 1975 through 1979, when house values doubled, and the second from 1986 through 1989, when prices rose more than 45%.

California real estate values became national news in the 1970s, when speculators began playing the market and wealthy bidders drove up the price of Orange County’s land-rich Irvine Co. to $337 million. The same company sold for $1 billion a few years later.

The most dramatic yearly increases occurred during the late 1980s in suburban coastal regions such as Orange, Ventura and Monterey counties, where median prices rose 25% or more. Median resale prices in the Los Angeles area rose 22% in 1988 and 20% in 1989, according to the California Assn. of Realtors.

The price increases have left the state with an acute housing affordability problem. A typical house in the Los Angeles area that cost $24,500 at the beginning of the 1970s sold for $195,600 at the end of the 1980s, while the nationwide median price was $23,000 in 1970 and $93,100 in 1989.

Property in Southern California has been an attractive investment going back to the 19th Century, when the region first became a magnet for newcomers from the East.

“Los Angeles is the history of its booms,” author Carey McWilliams wrote in 1946. “Actually, the growth of Southern California since 1870 should be regarded as one continuous boom punctuated at intervals by major explosions.”

An early boom came in the late 1880s, when as many as 2,000 newcomers a month flocked to Los Angeles, lured by the pleasant climate, railroad price wars and a flourishing agricultural economy. Rampant speculation sent land values soaring.

The bust came in early 1888, and by the summer, prices were plunging because of the speculative excesses. Los Angeles real estate plunged in value, but it also left behind a population and affluence that was to be the foundation of its future growth, according to historical accounts by the late McWilliams and others.

Most property owners today, accustomed to the price appreciation of the 1970s and 1980s, seem willing to wait out the downturn. Almost all believe that their home will be worth more in several years than it is today, financial advisers say.

“Even though there are worries about the short term, the long-term view is still optimistic,” said Lewis Wallensky, a financial adviser in Los Angeles.

Nevertheless, a new realism has settled over the market. “I used to tell my wife that we could retire today and buy Delaware,” quipped Wallensky. “Now I tell her, we can retire and buy Duluth.”