John M. Lee: Market gives off mixed signals

So what's really going on with the real estate market? There are mixed signals.

Some experts are claiming that there is a bubble, some say that we have peaked out, and others think that prices will be fine.

The truth is that nobody really knows until we are able to look back in hindsight and definitively tell what actually transpired. But, in the absence of hindsight, let's try to dissect all of the data and see if we can come up with some conclusions to help make better real estate decisions.

The market has slowed somewhat during the summer, primarily because there was not enough good listing inventory. But, since Labor Day, more properties have come on the market so we'll be looking at another robust market in these next few weeks. Most of this inventory will probably be sold by November. This happens every year in San Francisco.

Long-term interest rates have been hovering at about 6 percent. Even though the Federal Reserve Bank increased the short-term rate by another quarter percentage point Sept. 20, mortgage rates have not budged much.

The prime rate, which most home equity lines of credit are based on, is currently at 6.75 percent, about 2 percent higher than it was this time last year. If mortgage rates stay in the 6 percent range, our real estate market should be fine.

One unknown that could effect our real estate market is the effects of hurricane Katrina. Usually, after national disasters, people stop and reflect on what happened and are more cautious about buying or selling real estate. Our market came to a standstill after the World Trade Center attacks on Sept. 11, 2001; people stopped buying when the Iraq war started; and prices dropped after the 1989 Loma Prieta Earthquake. However, I believe that Katrina will not affect our market much. Don't get me wrong, people here care about the events in New Orleans and are doing whatever they can to help, but it does not affect them personally as much as the terrorist attack, or the local earthquake.

Some other thoughts on Katrina suggest it might actually stimulate the economy in Louisiana, as that whole region will need to be rebuilt, bringing new jobs and new wealth to the area. That, in turn, will trickle out to national suppliers and the construction industries, further strengthening our economy.

Most people perceive inflationary pressure as being bad. However, during periods of inflation, real assets like real estate tend to increase in value. The reason being that even though prices of goods are rising, income also rises, so people have more money for housing. So, if you are locked into a nice fixed-rate mortgage and your real estate is appreciating in value, you will be better off with inflation.

In two separate articles in the "San Francisco Chronicle" in September, the headlines read, "Bubble Won't Burst" and "Still Red Hot, But Slowing." In both articles, studies showed that in this region appreciation in prices might be slowing but the economy is getting stronger and housing prices are in line with economic growth.

This was demonstrated with the sales trend in September. During the two weeks from Sept. 6 to Sept. 20, 203 residential properties in San Francisco sold, with 159 (78 percent) selling for more than the asking price, 25 (12 percent) sold at asking price and only 19 (9 percent) went for under asking price. This means that 87 percent of the listings are still selling at or above the asking price, pointing to a very strong market.

If you are a buyer and are planning to hold onto your property for the long term, there are still compelling reasons to buy at this time. If you are a seller, it is still a strong seller's market, and with some aggressive marketing, you could get great prices.

We are extremely fortunate to be living in this beautiful city of ours, and real estate values should continue to flourish in the future.

John M. Lee is a top-selling broker for Pacific Union specializing in the Richmond and Sunset districts. For real estate questions, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.