John M. Lee: Mid-Year Real Estate Report

Real estate news is a hot topic once again. But this time, it's going the other way.

I hear from others now how bad the market is, how there are so many homes on the market and that prices are dropping now that interest rates are on the rise. Let's look at some data and really decide for ourselves where the market is.

I examined the single-family home markets in the Richmond and Sunset districts (because these two markets generally track very closely together) and compared them against the data in San Francisco as a whole.

For the first six months in 2006, 89 homes sold in Richmond versus 92 in 2005, a decrease of 3.3 percent. The median price went from $1,207,500 in 2005 to $1,075,000 in 2006, a decrease of 11 percent. The days on the market went from 35 to 36 days, a negligible amount.

The same trend was apparent in the Sunset area, where 258 homes sold during the first six months in 2005 versus 225 in 2006, a decrease of 12.8 percent. The median price went from $850,000 in 2005 to $808,000 in 2006, a decrease of 4.9 percent, and the days on the market went from 27 to 34 days in 2006, a 25.9 percent increase in marketing time.

In San Francisco as a whole, the number of sales decreased by 12.2 percent and the median price dropped by 4.6 percent over the first six months of this year. Thus, it is evident from the data that all the indicators are pointing in a negative direction for the first six months of 2006. The number of sales is down, and median sales prices are lower than in 2005.

But is this the end of the real estate boom? Are prices going to continue to drop? Are we in a buyer's market? What should I do if I need to buy or sell? These are the questions real estate buyers and sellers are currently asking.

Even though the market has slowed from the frantic pace of the past few years, homes are still selling at a brisk rate. The change has been more from a seller's market to become more balanced, where buyers and sellers can both negotiate for a fair deal.

The San Francisco market, however, is not even close to becoming a buyer's market and probably will never approach a market where the buyer has all the negotiating power. Some properties are still selling for more than the asking price with multiple offers. Homes that are in tip-top condition and in good locations are still very hard to find, and they are selling for high prices. It's the homes with some defects that are lingering on the market somewhat and selling for the lower prices.

Rising interest rates definitely have not helped the real estate market. The 30-year mortgage rates are hovering around 6.5 to 6.75 percent, a four year high, but still low by traditional standards. The economy is doing no worse than the last few years, but the buyer's sentiments seem to be wait and see - that's what's slowing the market down.

Also, sellers who need to sell are holding back because they cannot afford to buy a trade-up home. I have not seen much panic selling, like foreclosures, so my belief is that we will have a fairly balanced market for the rest of 2006.

My advice is that if you are thinking about buying and staying in the property for the next five years or more, it's still a good time to purchase. If you are thinking about selling, it is still a very balanced market and with some work and aggressive marketing, you can still realize fairly high prices. You can put the money to work in other financial investments or trade-up to other properties.

Though the data suggest that the real estate market is cooling down, opportunities are still plentiful for shrewd investors.

John M. Lee is a top-selling broker at Pacific Union, specializing in the Richmond and Sunset districts. If you have any questions regarding real estate, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.