1997
In Review
by Jim Scott
The
real estate market this year produced a recovery completely
unlike previous recoveries. Although history is
usually an important guide to the future performance of
markets, this real estate market is different
because it is operating in a far different economic
environment than in 1985 or 1975.
Real estate has always been one of the two major
factors in the economy of San Diego County. Developers,
local Banks. and Savings and Loans were the economic royalty
in this region. That industry is still important,
but other businesses now drive the local economy.
Real estate, both residential and commercial, is now controlled
by the dramatic changes in the regional and national economies
of the past seven years. Real estate’s fall from grace
has impacted the resale market and its current recovery.
Prices
By any traditional standard, prices of all types of real
estate should be increasing at a much higher rate than
they actually are. The inventory of homes for sale
is at a near record low. The regional recession is over
and it appears San Diego has reinvented its economy for
the second time in thirty years. Interest rates
are favorable and lenders are eager to make loans, even
to marginal borrowers and properties. Unemployment
is at a level of the late 1980s’. The population
of San Diego County continues to grow, adding forty to
fifty thousand residents annually. Housing starts, while
improving, are one-third the levels of the past decade.The
University of San Diego Index of Leading Economic Indicators
for the region has been up every month for the past thirty
months.
With all of these positives, it is surprising that home
prices improved only four or five percent in 1997 and
most experts predict the same for this year. This
anomaly is partially explained by the nature of the current
group of buyers and their view of our economic world.
Buyers
The home buying behavior of buyers is different in this
recovery period that in earlier periods. In general
they are not willing to engage in bidding wars, except
in a few instances. This newfound conservatism has its
roots in the last recession. The hard lessons from 1990-1996
are still a very recent memory. The twin assumptions
of the 1980’s, concerning job security and housing prices,
are gone. The new truths are: Incomes will not inevitably
grow, jobs are not as secure as they once were, and housing
prices can go down.
Buyers believe prices will go up over the long run, but
they do not want to count on it happening. They
do not want to be in a situation where they will need
to sell at a loss. This ugly scenario was played out over
and over during the past six years. They do not want to
be fired or transferred at the wrong time in the real
estate market cycle.
The result is that they are buying more for shelter(actual
and tax) and safety than investment potential.
Wait
till next year
So what does all of this mean for 1998? Buyers will
have another frustrating year chasing the limited supply
of homes. Buyers should heed the following: get a good
real estate agent, be patient, and forget writing low-ball
offers— it’s 1998. Sellers waiting for values to approach
those of 1990 will have to continue to wait. They too
need to be patient. Owners have to realize they possess
a coveted asset that will provide an excellent return
over the next five years. Buyers outnumber sellers and
that is usually a recipe for price increases of over ten
percent per year. Although that is a possibility, I think
the factors discussed in this article will restrain price
increases—at least for 1998.
In my opinion we are in for several years of relative
stability in the market and that is probably better for
all of us in the long run. 1998 prices will go up slightly
more than they did in 1997. Quality and entry-level areas
will perform better than mid-priced neighborhoods. Given
the fact that inflation will be below three percent, owners
should experience a net gain of three to four percent
on the value of their homes. Prices in the 92103
zipcode should increase 5.5 to 7% for the year.
Farewell to the 80s’
You
can reach Jim Scott
by email or at his office at 1111 Fort Stockton Drive.
Jim's direct line is 885-9511. Jim has been a homeowner
in Mission Hills since 1976. Scott & Quinn is the
oldest full service real estate company in Mission Hills.
There is also a professional property management team
on staff.
