While longer selling times for single-family homes are now clearly evident, the region is still far from the kind of recession that decimated the housing market in the early 1990s, says economist Lynn Reaser, speaking at UC San Diego’s School of Medicine recently.

Reaser, chief economist for Bank of America’s investment strategies group, said the region’s unemployment rate is still low and the economy diversified enough to weather the corrections in prices that have occurred this year.

However, Reaser also noted that if the Federal Reserve Bank board of governors increases short-term rates faster than expected, it could hurt what is still a growing economy.

“The Federal Reserve could overshoot the neutral level of interest rates,” Reaser said. “If (the benchmark fed funds rate) goes over 6 percent, there’s a greater risk to the economy.”

The current fed funds rate is at 5.25 percent after 17 rate hikes that began in June 2004. Reaser said she expects the Federal Reserve to increase the rate between two and four times this year to halt creeping inflation.

“The Fed is committed to do whatever it takes to keep inflation in check,” she said.

Because rate hikes are usually one-quarter of a percentage point, the short-term rate could exceed 6 percent by year-end.

The rate applies to the interest banks charge each other for overnight loans, and used as a benchmark to set the prime rate.

Prime is the rate lenders charge their best customers, and the basis for setting the interest charged for most short-term loans, including home equity loans.

Growing industries

A risk that could sink the local economy is a housing slowdown, followed by more energy cost jumps and fallout from the city’s pension fund scandal.

Reaser offset those negative scenarios with positive signs in the form of continued growth for several industries: biotechnology, defense, shipbuilding and technology.

She predicted similar economic growth rates for the region and state of about 1.5 percent through year-end 2006.