In Praise of Moderation
by Jim Scott

I am sure even the most casual observer of our local sport, real estate, has noticed the proliferation of for sale signs, lacking the expected rider proudly proclaiming “sold” or “escrow pending”. County inventories have skyrocketed to nearly 9,000 homes sale. This is a far cry from the typical mid-5, 000 range that we have been accustomed to over the past three years. At the same time, the County median price of $520,000, up 23.6% from last year, appears to be immune from any diminution and is resisting the bad news floating around. Back in the 1970s’ there was another name for this economic circumstance, stagflation. This was a combination of a stagnant economy and inflation. It may be true that housing has entered the economic purgatory of stagflation. We will have our answer by Halloween.

Buyers Get Religion

Sanity has indeed returned to the corps of frustrated and determined buyers. Demand for local investment and real estate has not diminished over the past five years and I see little prospect of that occurring in the medium run. Low interest rates and a lackluster stock market have left real estate as the only game in town. What has changed over the summer is that buyer’s pricing expectations are not in line with the inventory being offered. In other words, the vast majority of sellers have overreached the market. This does mean the market is not sliding into a recession. Quite to the contrary; what were missing in the past recession were buyers. Prices and interest rates were reasonable but buyers stayed out of the market either because they were waiting for more price concessions or they had their funds in a rising stock market.

The current slowdown is not based on prices or demand but rather shifting expectations of the buying community. They are not willing to shoulder that latest round of seller driven pricing; prices that were set above the first quarter market. Buyers are looking more to value and less to speculation and that is good in the long run.

Bad News is Good

There are seasonal variations that may falsely accentuate the most recent change in the market place. My research of seasonable buying patterns clearly shows that nothing is askew. Inventories are always bloated in the late summer. Traditionally they decline after Labor Day and will continue decreasing until next March or April. Buyers have also driven part of the change; prices and mortgage rates have simply outstripped their purchasing power. There will not be another 20 percent year in 2004 but a more reasonable five to seven percent. The market needs to consolidate and that is far better in the long term for buyers and sellers as well as for our community.

The best buying opportunities will be from now until late January. Sellers will be back on top next spring barring some catastrophic political or economic event.

Sellers: Should You Fire the Manager?

Most of the higher inventory is a factor of pricing and the time of the year. Summer is always slow and August is particularly sluggish. If homes are not selling, that does not mean the market is heading for disaster. Rates have inched below 6% and while affordability remains a long-term problem, demand for homes is still robust. So have patience with your listing agent. Shooting the messenger does no good. There is bad news to be handed out at this time. Buyers are active but have sobered up from the spectacular early spring market. Prices have also remained solid and I see little chance ahead of a correction. So if your home is not selling, cut the price.

Buyers: Should You Wait?

I know there is a cadre of buyers out there waiting for the pricing structure to correct downward. I see little upside and much downside to this strategy. I know prices may seem vulnerable to a major correction, but I see little sign of that happening. It seems there will be less opportunity going forward for bottom-feeders. There is more risk in waiting, not only from market prices but also interest rates. I think the election, the war in Iraq and the federal deficit are already in the price structure. The only real problem would come from a terrorist incident. Dr. Alan Gin’s USD Index of Leading Economic Indicators for San Diego suggests no recession is imminent.

The weekend after Labor Day should be active. Inventories will begin a long and gradual descent until early next spring. If this does not happen and inventories remain at today’s level, the long-predicted recession is here.

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

I welcome your comments; my email address is jimscott@sqre.com .

You can reach Jim Scott at his office, conveniently located in the heart of Mission Hills, at 1111 Fort Stockton Drive. Founded in 1982, Scott & Quinn is the oldest full service real estate firm in Mission Hills and is still locally owned and operated. Jim has been a homeowner in Mission Hills since 1976. He is married and has two boys. He can be reached at 296-9511, extension 100. Scott & Quinn features professional property management as well as 15 sales associates. Click here to see Jim's past Market Reports .You can also download Jim's 26 page research paper on San Diego County apartments.