CHICAGO -- The Midwest, California and the Southwest will see the biggest increases in real estate investment in the next two years, leading real estate executives and economists predicted in a new study.

The specialists, however, see a sluggish real estate market overall through 1995, citing recent overbuilding as the major detriment. They expect the market to grow more slowly than the consumer price index in the first half of the decade.

The experts also expect a decline in available capital, including foreign investment. Some respondents see a catastrophic impact on real estate from the savings and loan crisis, but others believe the worst already has occurred.

The nationwide survey, mailed in January, compiles responses of 400 real estate specialists to forecast the real estate market for the next five years.

The study was conducted by Ernst & Young Real Estate Advisory Services and the National Real Estate Index, a computer service that tracks real estate values and rents.

Houston was cited as offering the best overall potential for real estate investment over the next five years. Dallas-Fort Worth was the second choice, followed by Los Angeles, Seattle and Washington.

Despite the overall prediction of a slow market, 28.4 percent of the respondents said their firms would increase investment in the Midwest in the next two years compared with spending in 1989.

The specialists appear less enthusiastic about individual markets in the Midwest, however. Only Chicago was selected among the top 10 investment markets nationwide, and only two others made the top 30 -- Columbus, Ohio, at No. 29 and Minneapolis-St. Paul at No. 30.

"I think part of that's a lack of knowledge" about many Midwestern cities, said Michael L. Evans, national director for Real Estate Advisory Services in San Francisco, a branch of the accounting firm Ernst & Young.

"I think a lot of people view the Midwest as being Chicago," he said. "I think they were looking at the principal cities in each region and perhaps didn't have the information about other cities."

Almost 26 percent of the respondents expect to spend more in California, and 24 percent will invest more heavily in the Southwest, the survey showed.

But 21.4 percent of the specialists think they will spend less on real estate in the Northeast, compared with 17.3 percent who expect to spend more in the region.

The decrease can be traced to the belief of 28.6 percent of the analysts that New York is the most overpriced market in the country for real estate investment.

Los Angeles finished second in the balloting for most overpriced market, but also was identified as the metropolitan market likely to produce the best real estate performance in the next five years.

"I think it reflects the fact that Los Angeles placed high in every category," said Evans. "It's just a feeling that the Southern California economy doesn't want to stop."

Other top overall performers are expected to be Atlanta, Seattle, Washington and Chicago.

Other markets viewed as overpriced were Boston, chosen by 9.9 percent of the respondents; San Francisco, 7.5 percent; and the Washington area, 5.6 percent.

The survey also examined projected growth in specific property sectors: apartments, warehouses, retail space, and central and suburban office space.

Prospects for building apartments are best in Los Angeles, the specialists said. Atlanta is next, followed by Seattle, San Diego and Washington.

Atlanta topped the list of candidates for warehouse space, followed by Chicago, Los Angeles, Dallas-Fort Worth and Seattle.

Seven of the top 20 projected retail markets are in California. The specialists chose Orange County and Los Angeles as the best two retail markets, followed by Atlanta, San Francisco and Seattle.

Washington was rated as the best market for central and suburban office space in the first half of the 1990s. Rounding out the top five markets for office space in the central business district were San Francisco, Los Angeles, Chicago and Seattle.

Los Angeles was second in the voting for prospects for suburban office space, followed by Orange County, Calif., Atlanta and New York.