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A BUYER'S MARKET FOR 1991 REAL ESTATE

You've seen the countless headlines proclaiming "The Real Estate Bust" or "The Housing Slump." Clearly, property values everywhere are headed for a worse pounding than ex-heavyweight champ Buster Douglas, right?

Not so fast.

In fact, real estate may already have absorbed its most punishing blows in some regions and market sectors (though certainly not in others). In places where prices have flattened or slumped, and even where they may slide more, 1991 will offer home buyers and investors unrivaled bargains.

Says Peter G. Miller, author of the book "Successful Real Estate Investing" (Harper & Row, $8.95): "This is the best time to be a buyer in nearly 10 years."

The profit outlook for property in 1991 is, as usual, checkered. In general, though, a surplus of homes and apartments -- many being unloaded by the Resolution Trust Corp. -- combined with local economic weakness will continue to depress values well into 1991.

In the Northeast, for instance, the median price of a single-family home, down 5.6 percent already this year to $137,000, may sink another 8 percent to 10 percent next year. Even recently sizzling West Coast markets like Orange County, Calif., where prices rose 19 percent in 1989, can expect tepid 1991 price gains of 4 percent.

By late next year, however, as the oversupply shrinks, real estate markets in most areas are likely to bottom out according to the WEFA Group, an economic research firm in Bala Cynwyd, Pa. For 1991, WEFA forecasts that average house prices nationwide will gain 5.8 percent, while inflation runs at 6.4 percent.

Not everyone is even that hopeful. Barbara T. Alexander, a construction specialist who is a managing director of Salomon Bros. in New York City, argues, for example, that house prices may drop 3 percent overall next year. That would be the first such national calendar-year decline since World War II.

Here is the 1991 outlook for six real estate investments -- four worth considering, two to avoid:

Single-family homes

If you own a home and are in no rush to move, relax. Unless you bought at the very top of the market (which means within the past two years in most places), you probably have at least broken even and can look forward to modest gains, approximating the inflation rate, over the next decade. For first-time buyers, and those hoping to trade up, 1991 will be an excellent year to act.

If you're a trade-up buyer, your first move is to price your property to sell. That means setting the figure at today's levels, not those of the boom years.

Residential rental properties

Under pressure from regulators, banks and thrifts have reduced their real estate exposure, depressing home and apartment construction. Multifamily housing starts are off 60 percent from 1985, and home construction has dropped from 1 million units in 1989 to 800,000 units this year, the lowest level since the deep recession year of 1982.

Meanwhile, rental vacancy rates have dropped to 7 percent this year, down from 8 percent two years ago. This combination of forces could drive up the value of rental buildings by 6 percent to 8 percent a year through 1995.

With rental buildings selling for $30,000 to $40,000 a unit and up in major cities, consider banding together with friends to come up with the required 20 percent to 30 percent down payment. To find some of the best buys, you can check out distressed merchandise -- properties being unloaded by strapped developers and those that are up for auction or in foreclosure.

Vacation homes

In many regions, particularly in the Northeast, vacation homes are going for roughly 30 percent below the asking prices of 1988. But demographics will start pushing prices up again in 18 to 24 months, predicts John Hawks, a resort property specialist based in Baltimore. He anticipates that baby boomers entering their peak earning years will begin bidding up second homes.

Real estate investment trusts

For small investors, the easiest and least costly way to hold real estate is through a real estate investment trust. There are two main types of REITs: equity, which invests directly in real estate; and mortgage, which invest in mortgages and mortgage-backed securities (so-called hybrid REITs do both).

For the 12 months that ended Oct. 31, the average REIT share price has declined 34 percent and the average yield has risen to 12.8 percent. But many investment advisers now recommend a handful of quality equity REITs.

Kenneth Campbell, head of Audit Investments, a Montvale, N.J., real estate research firm, cites three that have held up better than most: New Plan Realty (New York Stock Exchange, yielding 7.34 percent), which owns strip shopping centers in small towns in the mid-Atlantic states and is down 14.5 percent over the past 12 months; United Dominion (NYSE, yielding 9.54 percent), which owns apartments and shopping centers in small towns in the Southeast, down 27.1 percent; and Weingarten Realty (NYSE, yielding 7.88 percent), which owns shopping centers that are anchored by supermarkets, located for the most part in Texas, off 21.6 percent.

Commercial property

Steer clear of commercial property in 1991. In many regions, non-residential real estate, including office and retail buildings, will be in a slump for five to eight years. Office vacancy rates are about 18 percent to 25 percent in downtown and suburban areas, and those rates will rise as space comes on the market in 1991.

Raw Land

In a phrase, forget it. Land prices rise when development activity is hot, and today's oversupply of housing and commercial properties -- not to mention stricter bank lending policies in the wake of the savings and loan debacle -- makes that unlikely any time soon.

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