Interest Rates
by Jim Scott

Interest rates are up because there are signs inflation is increasing.  I am not sure this is any cause for alarm in the real estate market. Housing markets in the past have shown remarkable resiliency when rates move slowly.  Further, the historical circumstances today are not the same as during other periods of increasing rates. 
     
There are two points worth examining on this subject.  First, the current chairman of the Federal Reserve Board, Alan Greenspan, is not Paul Volcker, the former chairman. He seeks to combat inflation with a series of small adjustments in interest rates. However, when Mr. Volcker was chairman of the Fed, he fought inflation by moving interest rates nearly overnight to over twenty percent.  The shock of going from twelve percent mortgage rates to twenty percent did arrest inflation but derailed our market. Today we are speaking of interest rates approaching eight and no double-digit inflation.  This economic realty is far different than when high rates sunk the real estate market. Volcker’s monetarist theory is not discredited. 
    
 During 1978-79, when rates moved from the low eight percent range to the mid-ten percent area, sales and rates of property appreciation did not slow down. And the same was true for 1989-90. The home market can more than tolerate the Greenspan style of micro-adjusting rates. Based on our past experience, you could argue that our market could tolerate rates as high as nine.
     
Second, during the last significant and sustained upward movement of rates, during the winter of 1994-1995, sales actually increased. When there is a perception that rates will not go any lower, as evidenced by rising rates, most people will rush to buy and refinance to capture the lower rates.  This explains the strength of the housing market in 1978 and 1979 as well as in 1989 and 1990.
     
But does this mean the party is over? The Fed will try and correct our collective excesses with one or more rate increases when circumstances merit it.  But as long as the stock market does not decline precipitously, we will see little effect on real estate prices.  There is simply too much money chasing too little product.  It is very expensive to build and our population continues to grow. Further, no one at the Fed is willing to repeat the banking debacle of the first part of the decade. Dramatically increasing rates could also trigger more problems in Asia and Europe.  Any threat of inflation will be moderated by a series of small rate increases.  The core rate of inflation is relatively low and stable and should remain so, benefiting the housing market.  This is good news for buyers and sellers alike.

The Summer Concert Series
     
That brings me to the Summer Concerts in Pioneer Park. If you haven’t been you should come.  It is free, very kid-friendly and a lot of fun. You can mingle and maybe even listen to the music. It is a movable, temporary town square that is frankly more satisfying than a mall experience.  Sociologists tell us malls have replaced town squares.  If that is so, why is it I recognize so few people when I go to Fashion Valley?  The concert series illustrates why Mission Hills is such a great place to live.  
     
The concerts do not occur without the hard work of the volunteers in the Mission Hills Association.  This is not an organization only for local businesses.  It is for everyone and I would encourage you to join and participate.  It is one of the main reasons we have so many great community activities.       
     
On a related item, all of us in the community owe a debt of gratitude to Max Zakar, who is leaving the Mission Hills Association.  Max has contributed much to this community while serving as the director of the MHA. This newspaper, the concert series, and the various neighborhood beautification project all seem to have some link to Max. Max energized the MHA. Thanks for your contribution and hard work.

You can reach Jim Scott 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.  The 13 associates serve the beach and metro areas.  There is also a professional property management team on staff.