John M. Lee: Real Estate Mid-year Report

Dismal real estate news has been all over the press this past year, so it was gratifying that I received a phone call and an interview opportunity from KRON Channel 4 news this past month asking if there was any sliver of hope from the latest data.

Fortunately, there are some early indications that the market is turning for the better. Let us look at some data to try to decide for ourselves where the market is going. 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 2009, 54 single-family homes sold in Richmond versus 103 in 2008, a decrease of 47.6 percent. The median price went from $1,265,000 in 2008 to $955,000 in 2009, a decrease of 24.5 percent. The days on the market were the same at 64 days.

The same pricing and volume trends were apparent in the Sunset area, where 212 homes were sold during the first six months in 2008 versus 138 in 2009, a decrease of 34.9 percent. The median price went from $815,000 in 2008 to $735,000 in 2009, a decrease of 9.8 percent, and the days on the market went from 39 in 2008 to 54 in 2009, a 38.5 percent increase in marketing time.

In San Francisco as a whole, the number of sales decreased by 23.6 percent and the median price dropped by 16.8 percent over the first six months.

Thus, it is evident from the data that all the indicators are pointing in a negative manner for the first six months of 2009. The number of sales is down throughout and the median sales prices are lower than 2008. But is there any positive news on the horizon? Are prices going to continue to drop? What should I do if I need to buy or sell? These are the questions real estate buyers and sellers are currently asking.

Here are more statistics for your consideration. The number of closed sales actually increased substantially from the first quarter to the second quarter in 2009, indicating a stronger market. Though some of the activity is seasonal, the quarter over quarter percentages are higher when comparing 2009 to 2008.

An even more impressive stat is that there currently are 83 pending sales in the Sunset District as compared to 86 closed sales for all of the second quarter, meaning the third quarter sales numbers should far exceed that of the second quarter!

I believe what we are seeing is the formation of the bottom in this real estate cycle. In the sub-$500,000 range, prices have already stabilized and there are multiple offers once again because buyers see the values in that segment of the market. That effect is starting to spill over to the $500,000 to $800,000 market, which is the bulk of sales in the Sunset District. Thus, we are seeing more activity and a leveling out of prices. The Richmond District is at a slightly higher price point, and should be the next area to gain in sales and prices.

Although we are starting to see improvement in the marketplace, there are two factors we need to monitor to determine if this trend will continue. The unemployment rate is predicted to reach around 12 percent. It has been rising, but the rate of the increase has been declining, meaning we will reach a plateau soon.

Real estate markets tend to track inversely with the unemployment rate. If people are uncertain about their job situations, they will not commit themselves to a long-term mortgage obligation. If unemployment starts to decrease, that would be a good sign for our market.

The other factor to monitor is bank foreclosures. We had a record number of filed Notice of Defaults in the first quarter this year, and everyone was looking for these homes to hit the market starting the second quarter. This has not happened because the government has been forcing the banks to work with homeowners on loan modifications and short sales.

If this process is working, perhaps we will not see this flood of foreclosures hitting the marketplace and eroding our prices.

Interest rates are expected to remain about the same through the rest of this year and are not believed to be a factor in this market. We have the hope that the credit market will loosen up its underwriting criteria.

So, my advice is that if you are thinking about buying and staying in the property for the next five years or more, this is a great time to purchase as prices and interest rates are down at the same time, a very rare occurrence. If you are thinking about trading up, it is a great time to do so because though you are selling at slightly lower prices than a few years ago, you are also purchasing at a much lower price than you would have a few years ago, so you will come out ahead on the trade.

As always, I would strongly recommend that you consult with a Realtor, accountant and perhaps an attorney prior to making any real estate decisions.

John M. Lee is a top-selling broker at Pacific Union specializing in the Richmond and Sunset districts. For questions, call him at (415) 447-6231.