John M. Lee: The year in review - 2005

The real estate market in 2005 was filled with excitement and overbidding during the first half of the year and then slowed down the rest of the year. Median prices peaked in the second quarter, then decreased the rest of the year. The Richmond home sales comparison chart shows the final results for 2005, as compared with prior years.

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

In 2005, there were 198 sales versus 231 for 2004 and 247 for 2003, a decrease of 14.3 percent from 2004 and a huge decrease of 19.8 percent from 2003. The number of sales has decreased substantially because there are no compelling reasons for sellers to move from the area.

In the first half of 2005, it seemed 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. The market shifted during the second half, with properties lingering on the market longer. Even though there were still multiple offers, prices dropped somewhat from the earlier half of the year.

The amount of time spent marketing a home increased to 31 days in 2005 versus 30 days in 2004, and 40 days in 2003, an increase of one day or 3.3 percent from 2004 and decrease of nine days, or 22.5 percent, from 2003. Homes were selling very quickly, buyers were ready to buy, and lenders were able to close escrow very fast, despite heavy loan volumes.

The annual median price comparison shows an extremely strong 27 percent increase over the past year in addition to a 13.3 percent increase from 2003 to 2004. The average sales price rose 26.2 percent during the year, suggesting that homes appreciated across all segments of the local market. The spike in the average price of a home sold in the second quarter is due to two very high-priced homes selling in the Sea Cliff during the quarter.

So, what is in store for 2006? The real estate bubble news has gotten old. Most economists are not predicting bubbles any more but more of a soft landing as we start an economic growth cycle. Office space is being leased out downtown again, rents have stabilized and local commercial space is being filled up, all meaning that busines is gaining confidence in the economy and they are, or will be, hiring.

On the federal level, the Federal Reserve Bank has hinted that it may have raised short-term interest rates enough, and might not need increase them anymore. The feds believe the rate hikes have served their purpose to keep a lid on inflation and boost our economy. The good news for us in real estate is that long-term yields, which our mortgage rates are tied to, have not gone up much and loans in the 6.5 percent range are still plentiful.

Locally, demand for housing is always strong and supply is still ever so limited. As you can see, with about 200-250 homes selling in the Richmond annually, demand still outnumbers supply. And even though we might not see the torrid pace of the last few years, our real estate market should be fine.

Thus, my prediction for 2006 is that we will have a better balanced real estate market, where the negotiating power will be more evenly balanced between buyers and sellers, a shortage of good inventory and moderate appreciation. So, if you are contemplating buying or selling property, this could be a great year to do so.

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