The Summer Rally 
by Jim Scott
This summer was one of the busiest I can remember.  Ordinarily July and August are slow months in residential real estate.  Conventional wisdom has always held that summer was the prime time for selling homes.  This may have been true years ago and probably still applies in the snow belt.   My research shows another result.
    
Spring and Fall are the most active times in residential real estate in our area.  This summer has been quite an exception when it comes to sales.  Inventories are up, which is typical for this time of year, but sales are running at a much stronger pace.  What is different about this year is the higher volume of new listings. Prices, however, are behaving in 1999 as they did in 1998—rising rapidly in the Spring and then remaining level for the remainder of the year.

This Fall
     
We will see declining inventories and stable prices this Fall. First the interest rates will continue to rise. There is little consensus as to how high rates can go before hurting the housing market.  At current levels, each quarter-point raise does little to the aggregate demand for homes. In fact, it can even  stimulate demand in the short run.
     
When rates increase it simply means buyers will be able to afford less house.  Given the job and income situation in San Diego, I doubt these recent increases will have any real effect on the resale market.
     
But there is a point where the price of money will begin to affect prices and sales.  It is not so much a question of affordability but of psychology.  It is an article of faith that bad things happen with rates increase; stocks go down in value, we lose jobs and  real estate falters.  
     
Why am I not concerned about rates?  It is because I am one of those people who believe in Alan Greenspan, the chairman of the Federal Reserve Board. The financial markets think he will keep raising rates (one quarter point at a time) in order to keep inflation low. I do not think mortgage rates will go over nine percent—–inflation will subside before rates reach that point and the Fed will lower rates. Markets crave stability and higher rates will act as a brake on prices in housing and on other goods.  Hopefully we can avoid another nasty recession. That last one really hurt.
     
Second, the increasing supply of listings will also restrain prices.  I suppose higher prices is causing this.   For example, owners who purchased homes between 1987 and 1992 are now able to sell at a profit. This cohort represents over 20% of the housing stock. 
What to do?
     
It is far too early to worry about how the financial markets are going to affect our local market. House payments are just going to be higher.  Sellers should not get too greedy and hopefully will heed the advice of their agents.  Buyers must recognize the cyclical nature of this business.  The current cycle is maturing and will not last forever. Never be the last one to leave a party.
This Column
     
I have been writing this column for two years and I always enjoy hearing your comments both good and bad. Drop me a line and let me know how I am doing, or better yet email me at jimscott@sqre.com.  

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.