John M. Lee: Real estate market review

This year marks my 23rd year in the real estate business in San Francisco and I must say that none of the years has been the same. It is exciting no matter if the market is going up, down or sideways. It is always in the news and no matter where I go in the world, everyone is interested in our local market! So here is a short recap of what happened in 2009.

The year started extremely slow with very few sales. In 2008 sales were down about 19 percent from 2007 and through the first quarter of 2009, and annualized sales were down another 25 percent from 2008. The year looked dismal.

However, beginning in the second quarter, we saw an increase in activity due to changes in the credit market. The banks were finally able to work out the details on jumbo conforming loan products of under $729,750. When these loans became available, it helped the sales of Richmond and Sunset district homes tremendously because, finally, buyers could borrow at affordable interest rates. Also, FHA loans came into the marketplace so buyers with good credit and stable employment could obtain financing with as low as a three percent down payment.

I was fortunate enough to attend a White House briefing in March and met with leaders from President Barack Obama's economic advisory team, plus executives from Freddie Mac, Fannie Mae and the FHA, to discuss how their economic policies would affect our real estate market in San Francisco and California. We all realized that real estate is such an important part of our economy that if it fails, we will fail as a nation!

Because of the capital infusion of money into the real estate market in the form of bailout funds, loan modification incentives and buyer tax credits, the number of foreclosures decreased this year from last. This helped to stabilize the real estate market and stopped price declines in the lower end of the market. Historic low interest rates of around 5 percent, which sustained throughout 2009, and lower prices helped buyers get into homes that they could not afford in years past.

I am happy to report that starting around May, the number of sales started to increase across the City and, as a result, sales numbers as a whole, though still below 2008 levels, are within 10 percent of that from 2008.

Prices have stabilized and are actually starting to increase in the lower and middle markets. Also, with an increase in demand, and decrease in supply due to the drop in foreclosure listings and sellers' reluctance to put properties on the market, our listing inventories are down to about a three month supply, a very low amount for our market-place. Thus, the signs are there for a good 2010 and beyond.

Though we see overall improvements in our marketplace, not all is well. Because of more stringent proposed rent control laws, buyers are staying away from multi-unit buildings. Sales are down more than 25 percent from 2009 and more than 65 percent from the peak years of 2004 and 2005.

Though Supervisor Chris Daly's proposals to allow additional tenants to move into a unit to help with rents; prohibiting rent increases if the rent exceeded 33 percent of a renter's income; and limiting the total amount of banked rent increases that could be added to a tenant's rent, were passed by the SF Board of Supervisors, Mayor Gavin Newsom vetoed it.

Also, currently under consideration is SF Supervisor Eric Mar's proposal to add another protected class to the city's rent control laws - families with children. According to the City's own research, this law can potentially help 18 families per year while negatively impacting all other tenants and property owners.

Additionally, Supervisor John Avalos is working to put all previously non-rent controlled buildings constructed after 1979 under eviction control, and Supervisor David Chiu is working to restrict garage additions to existing buildings in his district and might extend the proposal to include all properties in the City. The data presented to support the introduction of these legislative measures does not support the proposals or implementation of these laws.

With the constant attack on property rights by our current Board of Supervisors, it's no wonder that sales of 2 - 4 unit residential apartment buildings are down!

What is in store for 2010 in San Francisco? We have already seen the market pick-up in the lower end of the market. Prices have increased and activity has been robust. The middle market has been stabilized and moving up. The high end and investment markets are still a little slow and will take some time before recovering.

I enjoyed all of your phone calls and e-mails this past year. Many of you have been anxious about this real estate market, but the light at the end of the tunnel is shining bright and getting brighter. A happy holiday season to all of you!

John M. Lee is the incoming president of the San Francisco Association of Realtors. For questions regarding real estate, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.