John M. Lee: Real Estate Year in Review

The real estate market in 2001 was a mixed bag. The year started off with a bang, but prices peaked in the third quarter and proceeded to drop about 10 percent to 12 percent the rest of the year. The Richmond Home Sales comparison table shows the final results for 2001 as compared to prior years.

The data was gathered from the SF Association of Realtor's Multiple Listing Service and shows the sale of single-family homes in the Richmond District, Lone Mountain, Sea Cliff and Presidio and Laurel heights neighborhoods.

In 2001, there were 197 sales versus 204 in 2000 and 265 in 1999, a decrease of 26 percent over three years - a significant change.

I believe sales are down because many people who live in San Francisco want to stay here - leading to fewer homes on the market - and because the cost of upgrading to a larger home in the market is more than many are willing to pay.

Because there was not much supply, homes sold quickly, especially in the first half of the year. Since 1996, the story has pretty much been the same - more buyers than sellers. In the second half of 2001, homes took a little longer to sell, especially if there was any type of defect or problem with the property.

The amount of marketing time needed to sell a home last year (escrow included) increased to 31 days, versus 30 days the year before and 37 days in 1999.

From the time a property went on the market, was purchased and had all the legal technicalities completed, only 31 days, on average, elapsed. Part of the reason for the rapid turnaround in real estate is the use of new technology. With the use of computers, e-mail and the Internet, the loan application process and other steps are now streamlined. Technology also allows consumers to make faster and more-educated decisions regarding their purchase.

In the 2001 statistics, even though the annual median price comparison shows a 2.9 percent increase in prices, most of that appreciation occurred in the first three quarters of the year and we actually ended the year with prices that were below those at the end of 2000.

As to what's in store for 2002, most economists are calling for an economic recovery in the first part of the year, with growth resuming in the second half of the year. Unfortunately, real estate is a lagging economic indicator, meaning that we will be feeling the effects even after the economy has recovered.

For example, the stock market bottomed out in March 2000, but real estate prices kept going until March 2001 - a lag of 12 months. If we follow this same pattern, we might have a down market in real estate until 2003.

Several other factors point to this scenario as well. I am starting to see more short sales - cases where the amount owed on the property is less than its sales price on the current market. In cases like these, agents work with the banks to see if they will accept a lower payoff in lieu of foreclosures. The "work-out" departments at the banks reviewing each request on a case-by-case basis are busier than ever.

Our hope in the real estate industry is that we do not see the wave of foreclosures that we saw between 1992 and 1994. During that recession, banks foreclosed on properties and sold them off at fire sale prices, further depressing real estate values.

Another trend is more negotiations for price reductions. In the past few years, we have seen such a strong sellers' market that there were multiple offers and prices were bid well above the asking price. We are still seeing some of that, but most of that craziness is gone and we are back to a more normal type of market, where both sides can negotiate somewhat.

My prediction for 2002 is that we will have a very balanced market between buyers and sellers, with slightly declining prices for at least the first three quarters in 2002 followed by appreciation beginning again in 2003.

John M. Lee is a top-selling broker at Pacific Union's California Street office. For questions, call him at 447-6231 or e-mail isellsf@aol.com.