John M. Lee: Real Estate Year in Review

The real estate market in 2007 finally slowed from previous years, resulting in lower prices and less sales just about everywhere except for San Francisco, where median and average prices in the Richmond have risen steadily year after year. In the fourth quarter alone, there were seven sales of more than $3 million, bringing the average sales price up significantly.

The Richmond Home Sales Comparison Table shows the final results in 2007 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 Street, Presidio Heights, Jordan Park, Laurel Heights, Lone Mountain and Sea Cliff areas.

In 2007, there were 191 sales versus 187 for 2006 and 198 for 2005, an increase of 2.1 percent from 2006 and a decrease of 3.5 percent from 2005. The number of sales has remained level in the last few years, at levels that are historically low for the area. Buyers are hesitant because they are concerned about future appreciation rates and sellers are not selling because they perceive the market to be bad.

Despite all this, it seems 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. Properties with some defects, such as an odd floor plan, a location on a busy street, no garages or not in good condition, lingered on the market and were either withdrawn or sold at lower prices.

The amount of marketing time to sell a home decreased to 34 days in 2007 versus 38 days in 2006, and 31 days in 2005, a decrease of four days, or 10.3 percent, from 2006 and an increase of three days, or 9.7 percent, from 2005. This reflects the fact that homes were selling at a more normal pace with some marketing time instead of the panic buying we saw the past few years.

The annual median price comparison shows a 7.9 percent increase this year as compared to a 9.5 percent decrease from 2005 to 2006.

The average sales price increased 13.9 percent during the year, mainly because quite a number of expensive homes sold during the year. For the fourth quarter alone, there were seven sales more than $3 million, skewing the average sales price to the higher side.

So how do we interpret this information? Basic economic theory claims that a lower number of sales means lower demand, which should result in lower prices. However what we have in real estate is a limited supply with demand still higher than supply, resulting in higher prices.

What is in store for the year 2008? I think it will be more of the same with real estate selling at a normal pace. Prices have been holding and increasing in the Richmond. Because supply is low and the area desirable, prices should not deteriorate much. Certain segments of the economy are doing pretty well, others are in trouble, inflation is under control and rents are going up, all pointing to a mixed real estate market.

On the federal level, the Federal Reserve Banks have been decreasing short-term rates, believing inflation is under control and the economy is growing at a sustainable pace. While subprime mortgages pose a big problem, I believe it's a short-term issue and we can get past that in the next year or two.

The good news for us in real estate is that mortgage rates have been pretty steady all year and are not anticipated to change much in 2008.

Also, next year is a presidential election year, meaning politicians will do all they can to insure that the economy stays strong.

Locally, the demand in San Francisco and the Richmond District will continue to be desirable and strong, as supply is still ever so limited. As you can see, with the low number of homes selling in the Richmond, demand still outnumbers supply and though we do not see the torrid pace of the last few years, our real estate market is still active and should be fine.

My prediction for 2008 is that we will have a balanced real estate market, where negotiating power will be evenly split between buyers and sellers, a shortage of good inventory, and level prices.

John M. Lee was recently elected as the president of the Chinese Real Estate Association of America for 2008. If you have any questions regarding real estate, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.