Is It the Top?
by Jim Scott

The price per square foot for homes sold in Mission Hills during the first quarter hit record highs. Enthusiastic buyers pushed prices over $400 per square foot. Considering the average for 2001 was only $345 per square foot, the early returns seemed to suggest another round of hefty price increases in 2002.

Regular readers of this column know nearly all appreciation tends to occur early in the year. This year has not varied much from historical patterns. The lofty January results were not representative of the marketplace. It was a temporary post-9/11 bounce giving some sellers a lucky break. Since that period, prices have decidedly cooled. But do not assume the market is in trouble as prices are still higher than last year and I see no abatement in demand. Prices are cooling because inventories are up, interest rates are going higher and buyers are being a bit more cautious.

Things That Worry Me

The business cycle is not dead just yet. Last week the Federal Reserve Board sent a strong message: rates are going no lower and increases are very possible by summer. This means the Fed thinks 1) inflation may be a problem in the future, or 2) the recession is over. During 2001 cheap oil, low prices for goods and services and easy money kept the local economy afloat even though many sectors and regions were enduring a recession. San Diego has had the best of all worlds and that has been reflected in rising real estate prices and rents. The refinance boom and increases in paper values have created a wealth effect. But if mortgages and goods get more expensive, as seems to be inevitable, then there will be fewer dollars in the pockets of consumers. If the consumer spending stumbles, real estate is usually not far behind. When the wealth effect goes the other way, people tighten their belts.

The Rest of the Year

In spite of the many warning signals, I do not foresee any serious problems in the residential sector. Prices have already declined from the January spike and an analysis of homes in escrow evidences continuing negative adjustments in sale prices. This gradual retrenchment is healthy in the medium run. The appreciation over the past year, even with the latest price decrease, is still substantial. Prices should remain level for the rest of the year and that bodes well for the residential market in 2002-2003.

Downtown development and the health of the regional economy will continue to support the metro residential markets. As the City Center, East Village, and Little Italy continue to sparkle, so goes our marketplace. I see little in the future to derail downtown's momentum. A lot of smart money is betting on it. More importantly, some of that money is finding its' way into marginalized neighborhoods.

Looking to the east, formerly neglected areas are starting to benefit from the urban renaissance. North Park, Golden Hill and Normal Heights are having their day. As these neighborhoods continue to improve, as I am sure they will, property values in the 92103 zip code will benefit even more.

Looking Back

In 1973 the price of gasoline quadrupled overnight. High inflation rates and ten percent home loans were the norm. San Diego real estate struggled through a brief recession that ended in 1976.

Because of those events, urban San Diego rediscovered itself. Older neighborhoods located close to downtown became a real alternative to the suburban lifestyle. Mission Hills, moribund during the late 1960s, took off and has never looked back. Select areas of North Park, Golden Hill and Normal Heights are the next neighborhoods to benefit from downtown. They will never be Mission Hills, but they can be reasonable alternatives to living in El Camino Del Rey Mar Vista Estates. After all, feeding a SUV $2.50 per gallon gas can get ugly.

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.