John M. Lee: Real Estate Year in Review

The real estate market in 2007 finally slowed from previous years, resulting in lower prices and fewer sales just about everywhere except for San Francisco.

Median and average prices in the Sunset District, as compared year to year, were higher each quarter, even though the number of sales decreased by 14.3 percent from 2006. (The Sunset Home Sales Comparison Table shows the final results in 2007 as compared with prior years.)

The data was gathered from the San Francisco Association of Realtors' Multiple Listing Service and consists of single-family home sales in the Sunset, Parkside and Golden Gate Heights areas. In 2007, there were 427 sales versus 498 for 2006 and 558 for 2005, a decrease of 14.3 percent from 2006 and a large drop of 23.5 percent from 2005.

This is the lowest number of sales in the Sunset in the past 10 years since I started keeping track of these statistics. The number of sales decreased substantially because buyers were concerned that prices were decreasing and owners were not selling because they perceived the market as bad.

Despite all this, it seems that if a property was in good condition and priced right, it was sold within a matter of days, most often with multiple offers and selling above the asking price. Properties with some defects, such as an odd floor plan, being located on a busy street, having no garage or just not being in good condition lingered on the market and were either withdrawn or sold at lower prices.

The amount of marketing time needed to sell a home increased to 37 days in 2007, versus 34 days in 2006 and 30 days in 2005, an increase of three days, or 8.8 percent, from 2006 and seven days, or 23.3 percent, from 2005. This reflects the fact that homes were selling at a more normal pace, with some marketing time, instead of the panic buying we saw the past few years.

The annual median price comparison shows a 2.7 percent increase last year versus a 2.4 percent decrease from 2005 to 2006.

The average sales price increased 6.1 percent during the year, suggesting that home prices held their own in the Sunset area.

So, how can we interpret this information? Basic economic theory claims that a lower number of sales means lower demand, which should result in lower prices. However, what we have in real estate is a limited supply with demand still being higher than supply, resulting in higher prices.

What is in store for the year 2008? I think it will be more of the same with real estate selling at a normal pace. Prices have been holding in the Sunset and should remain so because properties are still cheaper compared to other parts of the City.

On the federal level, the Federal Reserve Banks have been decreasing short-term interest rates. The feds believe inflation is under control and the economy is growing at a sustainable pace. Subprime mortgages pose a big problem, but I believe that it's a short-term issue and we can get past that in the next year or two.

The good news for us in real estate is that mortgage rates have been pretty steady all year and are not anticipated to do much in 2008.

Also, this year is a presidential election year, meaning the politicians will do all they can to insure the economy stays strong.

Locally, the demand in San Francisco and the Sunset will continue to be desirable and strong, as supply is still ever so limited. As you can see, with the least amount of homes selling in the Sunset annually for the past decade, demand still outnumbers supply and though we do not see the torrid pace of the last few years, our real estate market is still active and should be fine.

Thus, my prediction for 2008 is that we will have a balanced real estate market, where the negotiating power will be even between buyers and sellers, a shortage of good inventory and level prices.

John M. Lee was elected president of the Chinese Real Estate Association of America for 2008. If you have questions regarding real estate, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.