Home Prices to Rise in ‘96, Forecast Says : Economy: UCLA report predicts increase of 3.1%, says residential construction will begin climbing again.

The one missing piece in California’s sluggish economic recovery should fall into place in 1996: an upsurge in home building and prices, according to the latest quarterly report by UCLA’s Business Forecasting Project.

In its quarterly report to be released today, the widely watched forecast predicts that the price for what is called a typical house for a middle-class family in California will rise 3.1% in 1996 to $202,900, the first annual increase since 1990. In 1997, housing prices will accelerate by 4.9%, the project said.

Those predictions join a growing chorus of others predicting that housing prices will turn up at long last. But UCLA’s projections are higher than other recent forecasts: The California Assn. of Realtors, for example, forecasts a meager 0.5% increase in the median price of existing homes.

“We think the potential for the real estate sector is strong,” said Tom K. Lieser, associate director of the UCLA Business Forecasting Project and author of the California forecast. “These are not big increases compared with past history, but it looks good from where we’ve just been.”

He added: “Most of the conditions [for real estate recovery] are in place in terms of low interest rates and lower prices, so the affordability equation is better than it’s been in some time.”

Residential construction, as measured by the number of new permits issued--and which has been up and down since 1993--will begin climbing again in 1996, to 125,000 from 91,000 in 1995, the forecast says.

That is at the high end of recent forecasts by other banks and institutions. Lieser attributes the upturn prediction in part to pent-up demand for housing.

A strong surge in residential construction would follow five years of substandard construction levels in the state. At the peak of home building in California in the 1980s, permits were triple the rate of 1995, Lieser said.

Otherwise, the latest quarterly forecast predicts modest growth in nonfarm employment in the next three years: 2.2% in 1995, 2.2% in 1996 (270,000 new jobs) and 2.3% in 1997 (294,000 jobs). That varies only slightly from an earlier forecast in September.

In overall employment, the UCLA forecast generally follows those of other economists.

Other UCLA predictions:

* The fastest-growing industries will include motion pictures (jobs will grow 16.3% between 1995 and 1998), autos and miscellaneous repair (up 15.5%), professional services (up 14.8%), amusement and recreation services (12.7%), business services (11.2%) and hotels (10.7%).

* Insurance industry mergers will slow the growth of jobs in financial services, which will grow only 4.2% in the next three years.

* Similarly, mergers could dampen job growth in retail trade, though foreign commerce will contribute to new jobs.

* Manufacturing employment will remain relatively flat over the next three years, with gains in nondurable goods offset by declines in durable goods manufacturing, caused by continuing layoffs and downsizing in the aerospace industry.

* Job losses will continue in aerospace but will slow: About 14,000 jobs will disappear in the next three years, compared with 20,000 in 1995 alone.

* Personal income will grow strongly in 1995, about 6.4% after inflation, the biggest gain since 1978. That growth will slow in the next couple of years. The rise in personal income is attributable in part to the growth in high-paying jobs in industries such as entertainment and professional services.

* INFLATION JOLT

Producer prices rose 0.5% in November, sparking fears that the Fed may not cut rates next week. D2

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Have We Hit Bottom?

Home prices and residential building permits, an indicator of home-building activity, are also expected to increase over the next three years in California. TYPICAL HOME PRICE

In thousands of dollars:

1998*: $224.9

RESIDENTIAL BUILDING PERMITS

In thousands of units:

1998*: 149

* Forecast

Source: UCLA Business Forecasting Project