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Buyer Bubble in San Francisco Real Estate

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

  

Now that the election is over, we enter a new phase for the housing market---we are in a lame duck period, much like President Bush's lame duck administration.  We have a market exacerbated by the transition between the Bush and Obama administrations. The significant actions that need to be taken are on the back burner until Barack Obama is sworn in. 

  

The economy is struggling and the government is still trying to figure out what needs to be done to get it back on track.  Treasury Secretary Paulson did an about face announcing that the bailout funds will now be used to supply cash to banks so they can lend instead of buying their bad assets. The question is when the banks receive the cash: will they use it to lend or use it for other purposes, like strengthening their balance sheets or buying other banks at attractive prices? 

  

The stock market continues to fluctuate wildly.  Many experts conclude that this gyration in a thousand point band, which could continue for months, is a sign that the bottom is near. In the meantime, it doesn't give the public a warm and fuzzy feeling, rather it makes the consumer nauseous. The constant drone of economic woes creates uncertainty and that uncertainty puts consumer activity on hold.

  

We came through a period of "Irrational Exuberance" thinking that home prices would never come down, now we find ourselves in a time of "Irrational Hope" for sellers and one of "Irrational Fear" for buyers. Sellers hoping to realize a price of yesteryear and buyers frozen in place as they fear prices may drop even further.

  

Now that we are no longer preoccupied with the election, buyers have resumed their search for that ultimate bargain home. The lower end priced homes continue to be the hot spot in the market. The price declines over the last two years of the entry level homes have resulted in first time buyers realizing it may be more cost effective to buy instead of rent. And additionally in some markets, investors can buy homes that break even or cash flow. This is where the action is. 

  

Sellers in the mid to upper ranges are finding that buyers are more selective and focused on getting value. We are seeing numerous price reductions in the million dollar plus homes. These decreases are not insignificant. Many are substantial. Some sellers are dropping list prices by 10-20% to entice buyers. A beautiful estate property in Kenwood listed at $5.25 mil. , which has been on the market a bit over 30 days, was recently reduced to $4.4 mil. 

  

This part of the market has been impacted by net worth declines, the uncertainty of layoffs, and the lack of liquidity in the jumbo loan market. Needless to say, this is an opportune time for buyers who have the ability to purchase in this market segment.

  

We are noticing fewer and fewer multiple offers. During this report period, there were no multiple offers on homes over a million dollars. Fewer than 12% of our transactions were involved in a multiple offer and the greatest number of offers on any one home was three.  That still amazes me given the current state of the economy.

  

Open home activity has picked up over the last couple of weeks. The good weather hasn't hurt.  Buyers are cruising as evidenced by the 100 buyers that visited the 2bedr. 1 bath Berkeley home priced at $565K.  Although sales have slowed in the upper price ranges, buyers are still out looking. A SF Seacliff 4 bedr. 3.5 ba. home priced at $2.949mil. had 30 groups of buyers visit.

  

The buyer bubble is building. It is anyone's guess when it will release some of the pressure.  Sales will be sluggish until the credit markets are able to find their sea legs and that doesn't appear to be on the horizon until we have a new administration.  One idea that has been suggested is that the government should buy down interest rates (current rates are around 6 % on conforming and closer to 7% for jumbo loans) by 1-3% for a period of time.  Another idea being floated around is a non-repayable tax credit to buyers of 10% of a home price up to $22,000.  One thing is for sure, the economy will struggle as long as the housing market is in the doldrums. You can be sure that one of these or other incentives will be passed.  Since the government will be bailing out Wall Street to the tune of a trillion dollars, you would think they could do a little for Main Street.

  

  The Goldman Report November 17 2008