John M. Lee: Real Estate Year in Review

The real estate market in 2003 was extremely interesting. The year started off with a bang, but median prices peaked in the second quarter and flattened out the rest of the year. The Richmond Home Sales Comparison Table shows the final results in 2003 as compared with prior years.

The data was gathered from the SF Association of Realtors' Multiple Listing Service and consists of single-family home sales in the Richmond, Lake Street, Presidio Heights, Jordan Park, Laurel Heights, Lone Mountain and Sea Cliff areas.

In 2003, there were 247 sales versus 228 for 2002 and 197 for 2001, an increase of 8.3 percent from 2002 and a whopping 25.4 percent increase from 2001. Why are sale activities up so much? I believe the terrorist attacks from Sept. 11, 2001 stalled the real estate market at the end of 2001, causing us to lose about a quarter of the year. At the beginning of 2002, there was strong pent-up demand plus prices were down 10 to 12 percent from the 2001 peak, causing buyers to start buying in 2002 - a run that never ended. Also, interest rates were declining to 40-year lows in 2003, making homes more affordable for many people. Homes sold at a brisk pace the whole year.

Throughout all of 2003, it seemed 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. There was perhaps a slight slowdown during the start of the Iraq war, but because the results were overwhelmingly favorable for the United States, it never affected the real estate market.

The amount of marketing time to sell a home increased to 40 days in 2003, versus 39 days in 2002 and 31 days in 2001, a negligible increase of one day, or 1.7 percent, from 2002 and an increase of nine days, or 30 percent, from 2001. What is amazing about this statistic is that this "days on the market" number includes the typical 10 to 14 days of marketing time and the escrow period, which is normally about 30 days. This means homes were selling very quickly and lenders were able to close escrow very fast, despite heavy loan volumes from the refinance market.

Even though the annual median price comparison shows a 1.6 percent increase year over year, a more careful analysis showed that more lower-priced homes sold in 2003 than higher-priced ones, leading to only a slight increase in the median price. In fact, lower-end homes appreciated more and the higher-priced homes less, thus compressing the median sales price. This is reflected in the average sales price, which increased 10.5 percent for the year and a whopping 24.1 percent from 2001.

What is in store for the year 2004? Most economists are calling for more of the same as we are clearly out of the recession and starting into a growth cycle. It has not been felt in this area as much as in other parts of the nation because our unemployment rate is still high, mostly as a result of the high-tech melt down. But keep in mind that employment is a lagging economic indicator and that as companies make more money, they will start hiring and the employment numbers will start to look better.

Also, 2004 is a presidential election year, meaning President George Bush will do everything in his power to maintain and sustain a strong economy. He remembers, all too well, that "It's about the economy, stupid" and why his father lost the 1992 election to Bill Clinton. As well, Federal Reserve Bank Chairman Alan Greenspan has already said that interest rates will not be increased significantly any time soon.

Locally, the demand has always and will continue to be strong and supply is ever so limited. We have seen multiple offers and sales over asking prices as the norm in 2003, and I don't see any reason that will change in 2004.

When we started 2003, we had three significant unknowns that could have impacted the real estate market negatively; the threat of further terrorism was very real; there was an imminent war with Iraq; and the uncertainty with rising interest rates. These events have all passed and our future looks brighter than ever for this New Year.

Thus my prediction for 2004 is that we will have a good real estate market with a shortage of inventory and moderate to good appreciation. So if you are contemplating buying or selling property, this will be a great year to do so.

John M. Lee is a top-selling broker at Pacific Union's California Street office. For questions regarding real estate, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.