John M. Lee: Real Estate

Real Estate Market Review

As 2010 comes to an end, it marks another interesting year for the San Francisco real estate market. This was the year when many people questioned whether it still makes financial sense to own real estate instead of renting. In a Sept. 6 Time Magazine article, it questioned the economic sense of homeownership. Here is a short recap of what happened in our local 2010 market.

The market actually started the year very well, driven by low interest rates and buyer tax credits on both the federal and state levels. In fact, if a buyer played their cards right, they could have received $18,000 credit total, which was a strong motivating factor to many purchasers. The credits expired on June 30 and fueled a pretty strong market the first half of the year.

As Washington D.C. and our state legislators wrestled with the question of how much impact tax credits contributed to the real estate market, they found out quickly in the second half of the year. Though most of the economic factors remained the same, real estate sales slowed substantially. The good news is that in San Francisco, our sales number for the year will come in roughly about the same as 2009 and 2008.

In other words, sales activity and our median prices have remained flat for the past three years. This is not necessarily a bad sign as the real estate market has to bottom out before it goes back up, and this forms a solid bottom in the cycle.

In regards to sales prices, what I saw was that pricing in the entry home market firmed and increased, the high end market was weaker and prices fell, while moderately-priced homes stayed about the same.

Historically in this area, real estate has about 10 - 11 year cycles with the start of the up cycle near the beginning of each decade. We are almost there. Real estate also is driven by employment. If people feel uncomfortable with their job situation, they will not commit to long-term obligations, like a 30-year mortgage. Our unemployment in the Bay Area is hovering around 10 percent and unless that comes down, the real estate market will not recover.

But signs are there for a comeback. Tech companies have been reporting better numbers, the biotech field is strong and office vacancies in this area are finally decreasing, all signaling that jobs are coming back. These signs, combined with historically low mortgage rates, will help the real estate market.

How soon will it take for this to happen? It will take another couple of years of moving up slowly before we see a rapid appreciation and a robust market again. But mark my words, it will happen as it always does! People are always surprised by this, but I have gone through these real estate cycles time and time again.

Each time when the market is down, the doomsayers are out there preaching doom and gloom and that real estate is dead. But before they are finished, our prices are off to the races and they lament that prices are so high that nobody can afford homes again. That is why this is called a real estate cycle.

So is homeownership dead? I don't think so because this is the American Dream. I have never heard anyone proclaiming: "My dream is to grow up one day and rent a home!" So, if you are in the market for a home, I cannot think of a better time to purchase property. With prices down and interest rates low, how can you lose? The worst that can happen is that 30 years from now, if you keep your monthly payments current, you end up owning your home free and clear, just in time for retirement.

If you are thinking about selling, keep in mind that prices will be higher in the future. Unless you have better plans for investing the money or your circumstances dictate that you must sell, think about delaying that decision.

If you are trading up, remember that the higher priced properties have decreased more than your property so it is a great time to move up.

I enjoyed speaking and exchanging e-mails with you this past year. Many of you had great questions about the market, but the light at the end of the tunnel is shining brighter each and every day. And in a couple more years, we will have endured another down cycle of the market.

Happy holiday season to all of you!

John M. Lee is the president of the San Francisco Association of Realtors and specializes in the Richmond and Sunset districts. For questions regarding real estate, call him at (415) 447-6231.