The First Quarter
by Jim Scott

There is good news and bad news. The good news for owners is that prices moved up smartly during the first quarter of 2001. The bad news is that inventories are at record levels and the charts are pointing to a market retreat. And then there is the energy crisis with the potential to eliminate jobs in the region.

The average price per square foot in North Mission Hills is about $350 per square foot. South Mission Hills sells at about a 15 to 20% discount from the north side as do the better areas of Hillcrest and University Heights. Certain other high end residential pockets mimic the North side pricing structure.

When you read about price increases in the local media they tend to quote median prices by zipcode. I prefer the adjusted price per square foot method for determining market direction as opposed to determining value of a specific property.

Price per square foot is an excellent indicator for predicting market shifts. Using my data from 1973 forward, which encompasses three residential recessions, I have found what appears to be shift in the current market.

During the past three recessions, the rate of monthly sales started declining far earlier than prices. In other words, the rate of sales in relation to the direction of prices has been a very reliable indicator in the past.

Using sales data through April 20th, the signs of a future price retrenchment are unmistakable. The past three local recessions were all triggered by external events. I keep wondering if the current energy crisis may bring on the fourth real estate recession in this area since the oil embargo of 1973.

Interest Rates

There is little question the Federal Reserve Board sees warning signs of a possible recession. So we had the April surprise of an unexpected interest rate cut of 50 basis points and another reduction widely predicted for May. Leaving the issue of jobs and the economy aside, how do this play with the housing market?

One needs to remember that the actions of the Fed directly influence short-term rates. Fixed rate mortgages fall into the category of long-term rates. Those rates will not be affected in any significant way if there is a hint of inflation in the air no matter what the Fed does.

There is a possibility that fixed rate mortgages will not respond in a significant way to the cut in short term rates. I could argue that the continuing party in real estate is being kept alive because of the Fed's benevolence. What if mortgage rates were in 8.5% or higher?

Demand and Inventory

Inventory is a record levels for this time of year. This is not all bad for sellers or buyers. For the past three years, the number of homes for sale has been at it lowest point in the spring. This year the inventories are more than double the ordinary levels.

I am not sure this change is completely bad for the marketplace. In fact, it may be a good sign as many of potential sellers are buying other homes keeping demand robust. More product in the marketplace will generally create more volume. But the current lackluster rate of sales will have to increase in order to prevent future price erosion.

Discretionary sellers, those people cashing out of the market, should sell now and be as realistic with the price as possible. If your home is not selling, look to the list price. Most buyers are much more value oriented and are less inclined to buy into the pricing frenzy of the past year.

Barring a local recession, buyers and sellers will find some meeting point and inventories will return to normal levels. Appreciation will be moderate and affordability will improve as interest rate cuts reduce mortgage costs. It will be a bumpy, albeit profitable, year for owners.

Buyers can still obtain decent deals if they can avoid shooting themselves in the foot. Sellers can move their product if they price correctly. A good bit of the current inventory in the 92103 zipcode is sitting because of what I consider to be absurd listing prices.

You can reach Jim Scott at his office, conveniently located in the heart of Mission Hills, at 1111 Fort Stockton Drive. 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. Scott & Quinn features professional property management as well as a sales division with 12 sales associates.