2001 in Review
by Jim Scott

The price per square foot of homes sold in the Mission Hills area increased about 9 to 10 percent last year. The increase is about the same for the 92103 zipcode. The price increase is only part of the story and now it is old news. Looking back, in light of recent events, gives less clarity than in the past. The road ahead must be watched more closely.

The rate of annual price appreciation slowed seasonally as the current bull market in homes matures. The summer of 2001 was an extraordinary period as average prices hit $365 per foot and volume was at a record level. Fourth quarter sales not only slumped but prices retreated to $331 per foot. The average for the year was $341 per square foot, double the price of 1994 sales. The price data would indicate the market is due for a breather or a pratfall, especially when analyzed alongside historical data.

It's The Volume
Among some stock brokers it is an article of faith that sales volume is the most reliable indicator of the health of a security. My past housing data suggests that there is also a strong correlation between price corrections and the rate of sales.

Prior to the housing recessions beginning in 1973, 1979 and 1989, the rate of monthly sales began to decrease on average about 18 months prior to the market changing directions. This is not surprising as the latter stages of any expansionary period feature increasing prices of all goods and services. As prices and interest rates rise, demand slowly decreases leading pricing cuts.

The Good News
The events driving each cycle of economic expansion and contraction always differ in specifics but not in generalities. If past patterns hold, the strong sales volume of 2001 would indicate that this housing cycle is not ready to change directions. The fact that total appreciation in 2001 was less than 2000 is more positive that negative. Demand and sales volume, spurred by low interest rates, have kept prices from declining even as most everyone acknowledges we are in a recession.

If recessions generally mean lower prices of all goods and services, why are prices and rents increasing?

The San Diego Economy
The answer is found in the nature of our local economy. First, we were on the periphery of the dot-com boom of the last decade which moderated expansionary excesses. Second, the region will benefit economically from the events of post 9/11. Third, the County is benefiting from the lower interest rates that are meant to assist regions that are in serious recessions. Rolling recessions, the process where recessions move from region to region at differing times, is two-edged sword. It is helping San Diego.

2002
This next year should see both moderate appreciation and buying opportunities. This panglossian view is brought to us courtesy of your Federal Reserve Board. Eleven rate cuts last year is the Fed's way of telling us that Americans will escape the pain of a major recession. To be sure, bad things can happen that can sidetrack our economy. But consider this: Over the past 20 months we have seen the virtual destruction of many stock portfolios and the actual destruction of an important national symbol. Yet we soldier on, sadder and wiser, but moving ahead with the flotsam and jetsam of life. Because of that very resiliency, I remain cautiously optimistic for this year.

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.