John M. Lee: Dialogs with R.E. Experts

I seem to get into discussions and dialogs regarding real estate on a daily basis with people I meet. But it's rare that I get to hear and discuss real estate issues with real estate experts.

In October, I got the chance to dialog with two leading authorities on the California real estate market and summarize their viewpoints of the market.

Jeff Davi is the Real Estate Commissioner for the state of California, appointed to that position by Gov. Arnold Schwarzenegger in 2004.

Leslie Appleton-Young is the vice president and chief economist for the California Association of Realtors (CAR). She is responsible for analyzing the housing market.

Both are often quoted in the media and, together, they presented a very consistent viewpoint of the California and Bay Area real estate market. Both emphasized that the number of sales are down significantly in 2007. They were down in 2006 from 2005 and approximately down another 23 percent more in 2007.

The forecast for 2008 is a decrease again, not as dramatic, but in the 8 percent range. This is a level we have not seen in quite a while.

With the decrease in sales, one would expect median prices to plummet. That has been the case in some outlying areas, but is not the case in the Bay Area and especially in San Francisco. We have held up as the best performing region in California.

Both experts attribute that to the diversity of our Bay Area economy, the growth in jobs, and a net increase in population due to migration into the area and natural births. In economic principles, lower sales activity generally means a lack of demand, resulting in lower prices.

So, how do we interpret the San Francisco real estate market when there is lower sales activity and still rising prices?

We still have quite a bit of demand and not enough supply, and some of the financing issues associated with the subprime mortgage problem are compounding the problem. There are still many people looking for homes and they are oftentimes unable to find what they are looking for. They have the money to invest but the homes they are looking for are not available. And, when they do come on the market, demand is so great that there are multiple offers and they sell for high prices.

Also, many sellers who want to sell their homes cannot find their trade-up home because prices have gone up so much that they cannot afford a new house. Thus, they are forced to stay and make the existing home work for them.

So there is a limited supply problem. There is lots of confusion with the market as the media is portraying it as a very bad market. But there are many buyers out there unable to find their home.

There are also buyers out there who are afraid of the market as they continually read how bad it is in the press.

The advice that Davi and Appleton-Young gave was tied into the fact that the real estate market operates in cycles. We are currently in the first or second year of our down to flat portion of that cycle. Nobody can tell exactly when the cycle will end until about six months to a year after it ends.

The year 2008 will most likely be a flat year, but robust years will follow. I walked away from the meetings with the two experts feeling good about the real estate market and thinking no wonder owning a home is part of the American Dream. It needs to be in everyone's financial and retirement plans.

Over the years, I have had so many clients who sold their San Francisco homes and were able to retire comfortably with no financial pressures in their golden years. That, my friends, is what real estate is all about.

For questions about real estate, call Lee at (415) 447-6231.