John M. Lee: Real Estate Year in Review

As 2011 comes to an end, it marks another interesting year in the San Francisco real estate market. As we analyze the sales data, it paints a picture of a market bouncing along the bottom and in the early stages of recovery. Here is a short recap of what happened.

The market started the year very well, driven by low mortgage interest rates under the 5 percent range. To everyone's amazement, the interest rate declined during the year and in certain periods, it hovered in the 4 percent range! This drove the refinancing market for people who still had enough equity in their homes to refi.

We ended 2010 with about a five percent gain in the number of sales from 2009 and median price increases of one percent. In 2011, our projected numbers are for another seven to eight percent gain in sales, but about a three to four percent decrease in the median sales price, a mixed result.

The question often comes up on how sales can be increasing and prices decreasing. The answer lies in the sales mix of the properties sold.

Median is a mathematical concept that indicates one half of the group is higher and one half lower. The median price of 101 sold homes would be that price which is lower than 50 of the prices and also higher than 50 of them. Do not confuse this term with the average. They can be quite different for the same sample group. If the homes sold are very evenly distributed, the median and average might be very similar. However, if the homes sold were weighted more to one end or the other of the price spectrum, then the median and average could be quite different.

What we saw this year was that the combination of declining interest rates, lower vacancy factors leading to higher rents, improvement in the unemployment rate, the leveling out of real estate prices, and the realization that our market is at the bottom all led to buyers making the decision that this is the right time to buy. An opportunity like this, with lower prices and lower interest rates, might only come once in a lifetime. So, they acted and drove the number of sales up.

On the other hand, those sales were concentrated more in the lower price range of the market, thus resulting in lower median prices. This actually holds well for the overall real estate market as those sellers now can afford to buy in the medium to higher price ranges. So, we should start to see more of those sales moving forward. For the last few years, the complaints I heard about in the field were that trade-up buyers did not feel that they could sell their homes and purchase one that suited their needs. Now that the number of sales have picked up, they will be able to achieve their goals.

These are all signs that the market has bottomed out and is poised for a move up. Real estate is a lagging economic indicator and follows mainly the job market. When the local economy has available jobs, people feel more stable and comfortable in committing to a long-term obligation, like a 30-year mortgage. They feel more comfortable putting down roots and investing in the community because they will stay there for a while.

Historically in this area, real estate has about a 10 - 11 year cycle with the start of the up cycle near the beginning of each decade. I believe this is exactly where we are at with all the signs present for a move up. So, if you are thinking about buying this is the time to act.

If you are thinking about selling, keep in mind that prices will be higher in the future. If you are trading up, you are trading across price ranges and this is a great time to reposition your portfolio.

I enjoyed speaking and exchanging e-mails with you this past year and I wish you a very happy holiday season and a prosperous 2012!

John M. Lee is an agent at Pacific Union. For real estate questions, call him at (415) 447-6231.