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No October Suprise in San Francisco

By
Real Estate Agent with Lee Ann Monfredini at Compass Real Estate San Francisco BRE# 014050049

November 2, 2008

 San Francisco Real Estate Update

October looked like it had great promise after a notable surge in open units in September. However this promise soon evaporated when sales in the middle to upper price ranges began losing steam as consumer confidence fell to its lowest level ever and the stock market gyrated like a compass gone haywire. The presidential election has also put a damper on the housing market as most citizens are glued to their nightly news shows, Saturday Night Live and printed media.  Many potential buyers wonder how the new president will impact the current financial environment. It will be a relief to put it behind us and have life return back to normal.

Prices have dropped significantly over the last two years in the entry level market.  Because of this, the majority of activity has been centered on the lower end of the market as first time buyers and investors feel that now is the time to buy. According to the Calif.

Assn. of Realtors, first time buyer affordability has risen year over year from 24% to 48%. Seventy-two percent of the homes closing in California are now under 500K.  Even in Marin, which historically has had one of the highest median sales prices in the Bay Area, finds 46% of active listings under 500K now in escrow; while only 11% of listings between $1-2 mil. are now in escrow. High end markets like the upper Napa Valley have all but ceased to exist primarily due to the huge losses suffered in the financial markets.

We are seeing fewer and fewer multiple offers.  If they go over list price, it is only by a few percentage points and a number are selling under asking. Of the multiple offers, most are in the lower price ranges with the majority of them in the urban centers of SF and the Oakland/Piedmont/ Berkeley area.  Despite the decline, it still amazes me that we are even seeing multiple offers given the current economic climate. 

Open house traffic has slowed. Again the heaviest traffic is in the urban (SF and parts of the East Bay) markets. We are still seeing groups of 25-50 buyers through homes that are having their first open house.

Subsequent open houses are attracting low double digit or single digit numbers. In outlying areas, a good open house is one with 15 or more buyers, however most are well below that number.

The lower price ranges will continue to see the greatest amount of activity as loan dollars are readily available with reasonable loan terms and where lesser amounts of equity are required. Loans for higher priced properties are more difficult to obtain as they require much larger down payments and borrowers must meet stricter loan terms. For example, a buyer who is putting 60% down on a SF Nob Hill unit is finding the lender asking for requirements usually reserved for those buyers with sketchy credit and higher ratios.  The lack of availability of reasonable jumbo ($729,750 and higher) loan financing is adding an additional burden to the market.

 The number of price reductions is increasing especially in the $800,000 and above price ranges. Those buyers that are willing to write an offer are seeking exceptional values.  This is no market for sellers to test price. Many sellers have found themselves chasing the market downward.

The middle and upper ranges will continue to be challenged as a weakening economy will create enough uncertainty to prevent a number of discretionary buyers from entering the market.  This fact combined with a jumbo loan market that has not found its footing, will make selling a home in these price ranges more difficult.

All is not doom and gloom. I believe that over the next few months we will begin to see price stabilization in the lower end of the market.

Unit sales will continue to increase in this price category. With banks more willing to do loan modifications (i.e. JP Morgan being among the first to modify billions of dollars worth of loans), we will begin to see fewer properties going into foreclosure.  The massive increase in inventories we saw during 2007 will dissipate. The recovery starts at the bottom and works its way up.

The Goldman Report