This sprawling city has one of the great zoos of the world, cool breezes from the Pacific and a real estate market that can best be described - in an understated way - as overheated.

How hot is the San Diego market?

In the first three months of this year, the average price of houses sold here, according to the Board of Realtors, increased from $62,001 to $66,374. That's over 7 per cent in three months.

One World War II-era house with two bedrooms and one bath sold originally for less than $20,000. It recently was listed for $79,000 and was bid up in two days to a selling price of $89,000. The location in seaside La Jolla didn't hurt.

Some home buyers now camp in front of housing subdivision sites to be on hand when new sections of a development are opened for sale.

Total housing production in far-flung San Diego County totaled 29,000 units in 1976, more than double the 12-000 units produced in 1955. And the prices increased with the stepped-up sales pace.

San Diego area housing sales obviously benefit from the increasing momentum of both business and retirement-minded people who choose this Southern coastal area with mild temperatures and cool breezes. The city's dominant characteristics are related to recreation, a major military presence, tourism and a lifestyle that combines the most appealing aspects of Potomac and Rehoboth Beach.

As a result, San Diego living is restricted to people who can pay the price. Newspaperman Gerald L. Schultz said he couldn't even consider years ago for his family.

He bought 1 1/2 acres on a hill in the El Cajon area for $7,500. It would be $15,000 to $20,000 today. In 1973, the first year his house was completed, the county assessor said the property was worth $33,000. And that was only the beginning.

In 1975, the house and land were valued at $47,500 for tax purposes and the figure went to $55,000 in 1976. Does Schultz protest? Not an official whimper, because he knows that his three-bedroom (plus garage with studio above) tri-level house built on poles stuck into a hill would probably bring $100,000 or more in today's market. So he lives with his $1,300 tax bill, while wondering how much it will be next year.

While Schultz is trying to cope with his taxes, realtor Charles B. Kopp, about 30 and newly married, is rolling on the tide of housing inflation. His own four-bedroom house has increased in value from $84,500 to $105,000 in a year. It's a "tract house north of San Diego."

But Kopp, who makes his basic real estate living in commercial property, also dabbles in the speculative housing market. He took title to a property for $73,500, but invested only about $8,000. He doubled that figure when the house was resold quickly to an investor from Japan.

"It's simple; demand exceeds supply," he said. "I'll probably buy another house and rent it for awhile and resell it later, even though I have to pay a higher interest rate charged to non-occupiers."

Despite the high prices of San Diego area housing and an increasing trend to cluster-styled apartments and town houses, the market remains vibrant. One reason is that the rea includes some well-planned new communities and some imaginative subdivision developments of dramatically styled singles and town houses.

At Rancho Bernardo, about 25 miles northeast of San Diego (somewhat similar to Reston), buyers willing to wait three to six months can find patio and duplex houses priced from $70,000 to $130,000, depending on size and location in relation to a golf course. There are moderate-sized fourplex dwellings with one, two or three bedrooms at prices in the $40s and $50s.

In addition to its rancho-mountain-valley attractiveness, Bernardo also gets high marks for its open spaces which include private and public golf, swimming pools and tennis courts, convenient shopping areas and an industrial park set apart from the residential area. The development is a project of Avco Community Developers.

Another small community of luxury homes where sales have been strong is Avoc's Windemere on a mountain top overlooking the city and its stunning bay.

Since opening a year ago, prices of the moderately large (1,615 to 3,400 square feet) attached and single houses range will over $100,000. Lot sizes are small, but interior and yard privacy has been highlighted by pools and garden areas.

Windemere's 151 town houses and 146 detached homes are being built on a 297-acre site which includes a community recreation area with six tennis courts, two racquet ball courts, simming pools jogging and bicycle paths.

Buyers of houses priced over $125,000 are more likely than others to be occupiers. The California real estate market, not unlike Washington's, does provide a number of opportunities for investors to become owners of lower-priced town houses, cluster homes and condominium apartments, where the rent often covers most of the monthly payment and where the total property valuation is likely to increase from 10 to 25 per cent annually.

Measured against the amount of total cash outlay committed by the investor looking for a property under $60,000, the valuation gain in one year could be as much as the initial equity.

In addition to unusual numbers of homes bought to be occupied by the owners, many houses are being bought by middle-in come persons seeking a good investment return. They are using their savings for the down payment - money that otherwise would have been put into stocks, bonds or savings certificates.

And there's a growing tendency for builders and developers to keep some of their houses and rent them. That would bring considerable appreciation in value over time, some regular income and tax depreciations - all with the prospect of a sale at a considerably higher price several years later.

One Washington realtor said the California speculative market is an example of the growing awareness of the middle-class of investment opportunities.

"Some of our new condominium and coversion dwellings in this area have been bought by investors, if the price was right. Butit must be remembered that the speculation bubble can burst, as it did in Ocean City just a few years ago," he said. "Then the selers' market becomes a buyers' market."

That warning has been repeatedly issued on the West Coast. Inventories of unsold houses in San Diego are at their lowest point since 1969. But this is working against the trend of people to relocate from the East and Midwest to Southern California.

One executive commented, "Our firm avoids recruiting (employees) from places like Dayton and Des Moines where real estate values have not escalated proportionately with California's."

There is mounting evidence that the unprecedented escalation of home prices and sales in Southern California may be building up the market for a letdown. If buyer confidence is shaken, the varied speculators who have fueled the boom drop out of the market.

That confidence could be shattered by a number of factors. Interest rates may continue to climb, lenders may insist on larger down payments, investors may find it difficult to borrow money.

Unlike the Washington area, Californians know about severely depressed housing markets. It may not happen, but if and when it does, one safe guess is that the swing of the pendulum will be wilder there than in other parts of the country.

MONDAY: The 'Desert Life' in Arizona.