What Me Worry?
by Jim Scott
My apologies to the late Bill Gaines but I think his famous phrase is on point when it comes to the current real estate market.  Even though sales and price increases have sagged, there is little to worry about.  The Bull Market is not dead—yet. What follows are some ideas and other idle speculations about this quietude we are seeing in the market.

Seasonal Myths

Perhaps the slow down in the market is seasonal in nature.  The holidays are rapidly approaching.  Summer, long thought to be the busiest season for house-hunting, is long past.  This is a convenient but not accurate explanation for the market.  In fact, the Fall has been the second most active time of the year in our market.  Ordinarily, the rate of sales is very brisk from mid-September to mid-December. It has been this way every Fall since 1991 when I began keeping statistics on when escrows are opened. What has been consistent with past years is the lower rate of new listings. The  normal low year-end inventories have fueled the Spring rallies we have gotten used to.

Interest Rates

 Interest rates have increased fifteen percent since last Spring. Rates have a profound psychological effect on the real estate market.  (The actual after-tax expense of small increases in interest rates is generally only a few dollars per month.)  Rising rates engender fear among consumers—exactly what the Federal Reserve Board wants when it raises rates.  The Fed is telling you to put away your wallet.

The recession of 1973-75 was triggered when fixed rate mortgages went from seven to ten in the space of a few months.  The recession of 1980-84 started when rates went from twelve to twenty nearly overnight. Those rates were increased because of inflation rates.  The real estate recession of 1991-97, however,  was not sparked by interest rates or inflation.  It was a regional recession born of global events.  Recessions are not necessarily driven by rates. 

Since the cost of fixed rate money is still very low for the post-Vietnam era and prices of homes are lower today, adjusted for inflation, than they were ten years ago,  it is hard to believe affordability is the problem.

Does 60 Days Make a Market?

Two weeks ago the San Diego Union ran a cover story in the business section announcing the impending death of the  housing market. Their market statistics, along with my own experience, are enough to convince me that a market shift has in fact occurred.  I think, however, that the wrong question is being asked. A new market paradigm is in place.  The nature of the commodity (real estate), and how it is traded, has changed dramatically.  When we look at statistics we view them through the prism of our past experiences with the pre-Internet market.

The information revolution means consumers have more information faster and react more quickly. They do not need the Union or people like me to tell them about the market. They are informed and therefore nervous right now.  I am too. It is time to be cautious. In the pre-Net world, it would take a year for consumers to react to events. 

 I believe there is really no fundamental change in the market. With all respect to the Union, I think they failed to see the forest.  This market will be back quickly. As soon the current winter of our financial discontent ends, the buyers and sellers will be back at the table.

Smart buyers should be at the table now.  It pays to play when there are fewer competitors.  There are good homes to buy if you get the right price.  I know the current inventory is stale and overpriced.  But I believe the next sixty days will offer some good buying opportunities.

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 12 associates serve the beach and metro areas.  There is also a professional property management team on staff.