Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, April 15, 1990                   TAG: 9004160390
SECTION: HOMES                    PAGE: D1   EDITION: METRO 
SOURCE: The New York Times
DATELINE:                                 LENGTH: Long

ANALYSTS THINK HOUSING PRICES WILL LEVEL OFF, MAYBE FALL

Although there is considerable debate about the topic in real estate circles, many economists and analysts foresee a fundamental contraction in the demand for housing, which will hold down prices.

They point to the aging of the baby-boom generation, which fueled much of the demand since 1970. That group is moving past its prime home-buying years, and the generation that follows is much smaller.

"We're going to have slower growth in the adult population, and fewer people means less demand," said N. Gregory Mankiw, an economics professor at Harvard University, who predicts that housing prices will decline over the next several decades, after adjusting for inflation.

Mankiw's forecast is among the most pessimistic. Other projections vary widely, but many economists agree that after many years of generally outpacing inflation, prices for single-family dwellings, including cooperatives and condominium apartments, will do no better than match the inflation rate in this decade.

To be sure, the national trend will mask substantial regional differences in the price of housing, as it always has.

For example, the median selling price of a single-family house in the New York metropolitan area increased from $70,500 in 1982 to $194,000 six years later, before slipping somewhat to $185,200 last spring, according to the National Association of Realtors.

By contrast, the median home price throughout the nation for the same period grew by just 4.3 percent a year.

Moreover, other experts contend that house purchases will be propped up in the years ahead, even though the pool of new buyers may be declining.

These analysts note that as the baby-boom adults grow older, into their 40s, they enter their peak earning years, when they are most likely to decide to buy larger, more expensive homes.

And even if housing prices stagnate, owning a home continues to carry clear-cut financial advantages, like tax deductions for mortgage interest and some local taxes, and less tangible rewards, like the pride of ownership.

Still, a long-term weakening in house prices could mean major changes in consumer psychology.

While income levels and general economic conditions are the primary influences on individual economic behavior, experts say that because a home is the primary asset for most people, declining or stagnant housing prices could leave people feeling poorer, making them more cautious in their spending habits.

Although the link between home price increases and individual economic behavior is statistically sketchy, researchers say there is some evidence that a sustained period of stagnant or falling prices would prompt consumers to cut back.

Dr. Richard T. Curtin, who directs an economic survey of consumers conducted by the University of Michigan, said that recent surveys in the Northeast, where housing prices in many cases have fallen after several years of rapid run-ups, show evidence that some homeowners in that region are feeling a bit pinched.

Curtin said that the decline in housing values "has made families feel that their actual financial condition has declined and that has had a general impact on their willingness to make a wide range of purchase decisions, especially for high-priced items involving credit or debt."

The implications extend beyond spending. If housing becomes less attractive as an investment, researchers say, then investors might choose to tie up less money in their homes and put more in stocks and bonds, or in the bank.

There are also implications for the national economy. Any long-term decline in housing demand could mean lower employment in construction and related industries, long an important component of the nation's overall economic health.

"We know less about this than we ought to, and there may be more implications than we know about," said Lyle Gramley, chief economist for the Mortgage Bankers Association.

Many real estate executives and analysts dispute the notion that demand and prices are headed down. They argue that other factors, like smaller households, growing incomes of the baby boomers and the rising cost of land and construction, will keep demand and prices strong.

"We see very good years ahead for housing in the 1990s," said Norman D. Flynn, the president of the National Association of Realtors.

Still, there are signs in previously hot markets that the psychology of real estate is starting to change. Homeowners who counted on selling their houses at big profits are forced to scale back their expectations, economists say.

People who would previously have scrimped to buy a home as soon as possible, before prices rose further, are now taking a harder look at whether it is worth it to buy. Sometimes they are deciding to wait longer, which leaves sellers facing long delays and forces them to mark down their prices.