Business as Usual
by Jim Scott

During the first quarter inventory levels in the metro residential market have hit record lows. The predictable result has been a price explosion and many frustrated buyers. Resales have been brisk and have rewarded sellers who heed the charts; always be a seller in the first part of the year. The market is conforming to past seasonal cycles and much of what is occurring today is to be expected in relation to historical patterns. Price increases are to be expected, only the rate of change is surprising.

Is History Really Repeating?

Perhaps the recent market is indicative of a sea change in the market. The idea is worth exploring and perhaps this article will lend some ray of hope buyers now sitting as back-up number two or worse. That hope probably will be limited to rising availability, not price relief.

Mission Hills, Hillcrest and other metro neighborhoods, now engulfed in this pricing revolution, have not always been in favor with buyers. Past buying and selling patterns have always reflected residential markets as a whole. This means the county, state and even national markets. Those markets have been driven traditionally by interest rates and the number of jobs available in any given region. In 1975 for example, the median price in San Diego was not much different than other similar urban areas.

Thirty years is an eternity for markets. Over that period San Diego inner city real estate has progressed from a declining, if not charming, place to live to the hottest spot in the County. When the oil spigot got turned off in 1973 the price of gasoline quadrupled. . The inconvenience of waiting two hours in a line for expensive gas sparked an interest in living closer to the job centers. In addition, part of the social revolution of the previous decade was a rejection of mass-produced sameness as represented by the suburbs. Those activists entered the marketplace in the mid-1970s and started buying in forgotten neighborhoods like Golden Hill and Hillcrest.

Prices in metro neighborhoods have moved roughly in tandem with county averages since 1975 but not always at the same time or at the same pace. It appears now the metro area is poised to appreciate, at least over the medium term, at a rate higher than suburban areas. Scarcity, downtown revitalization and lifestyle issues practically guarantee the outcome.

There Is No More

Land that is. My theory is thus; the population of San Diego County will grow just as the national population does. There is a fixed supply of urban close-in land, both developed and undeveloped. (By the latter I also am including areas with low-density housing that can be high density. In effect, changing density "creates" developable land.) But we all know density is subject that our leaders wish to avoid. Within the core there is no solution other than density. We cannot rezone a flower farm and build another El Camino Del Ray Mar Vista Estates in North Park.

Additional traditional housing can be built, albeit costly, outside of the city core in large numbers. These homes are generally very expensive and carry additional transportation burdens to the culture and homeowner. The prices in the suburbs, and by price I mean the cost of the home plus the transportation 'tax', will make the city center homes look better over time.

That leaves only one outcome, higher prices well into the foreseeable future. The best buyers can hope for over the future is that at least they can have some choice among the array of expensive homes and condos. The post-war shift of population from the older regions of our republic to the West and population growth from foreign immigration means only one thing; we have reinvented ourselves in the mold of pre-socialist Europe.

The social danger is that home ownership will be less democratic and less accessible. The landowning class will use real estate equity to insure their children can own homes. The hardest working of those on the bottom will eventually own land but most will languish as renters either by choice or circumstance.

Buyers Behaving Sanely

There is no need to give reproach. Buyers are doing the exactly the right thing. Economic choices are generally rational and that makes markets rational. Metro market buyers are behaving as they should. Prices move up or down largely based on how potential purchasers perceive the future-assuming no radical shifts in interest rates. Metro buyers have seen the handwriting on the wall and have placed their bets. What they are doing makes perfect sense to me.

In the short term there remains serious interest rate risks. Surely the Fed will have to tighten after the election. Someone has to pick up the tab for rising deficits. Buying opportunities should then be plentiful in 2005 and 2006 as rates move up to pay for recent tax cuts and war expenditures. I define opportunities as having more choices on the market place, not as having a plethora of bargains lying about. If you think 1994 is going to happen in the next few years you are missing the market.

LISTING OF THE MONTH

This 3 BR Craftsman home represents a chance to buy into an improving neighborhood for an affordable price. Spa, decks and private backyard complement this University Heights home. $595,000. Call Jim for details.

Read Jim's back articles at www.sqre.com or call him for selected back issues, 619 920 9511