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McGuire 7x7 Roundtable: 1st Round


The real estate market is confusing. With its ups and downs not just in the Bay Area but also nationally, it’s hard to make sense out of it all. In an effort to parse down the dizzying amount of information, McGuire presents Top Producers’ Roundtable, a quarterly perspective on what’s happening in the San Francisco real estate market from some of the most successful agents in the city. Top Producers Roundtable will appear in the March, May, July and October issues of 7x7. This quarter, the team compares national and local real estate trends, the value of San Francisco real estate while offering reasons why now’s a good time to buy.


Question #1.

What is your outlook for residential real estate sales in San Francisco in the short term (6-18mos) and in the long term (3-5 years)?

Answers:
BC: My outlook is positive, for 2007 especially for the long term.  While market conditions can result in some fluctuations in the short term, the prime areas of San Francisco have not experienced any significant downturn in my 20 years in real estate sales. The conditions that could create the fluctuations discussed in the media are not present in San Francisco. The supply is fixed in that there is little, if any, room to build additional homes. The condo market is a little different.  In the newer areas such as SOMA and Mission Bay, there are many new condominium projects that could create a supply/demand imbalance, which may benefit buyers, in the short term.

LdB: The real estate outlook is good, for both the short & long term, granted that a natural disaster or global incident does not occur.

MR: The short term outlook for SF is fantastic. Employment figures in the Bay Area are very strong and the market will remain vibrant while money remains cost effective. I agree, for the long term, barring a natural disaster or major international incident, there is no reason values will not continue to appreciate.

TG: In the short term, we are already seeing multiple offers over asking in ’07. In the long term, San Francisco is an amazing place to own property and has shown incredible resilience in whatever soft markets we’ve had.

CC: I believe residential sales will remain flat in the short term while the Buyers and Sellers adjust to a more balanced market.  There appears to be a multitude of “fence sitting” buyers which will need a push to plunge into the market.  Sellers need to lower their old expectations of double digit appreciation and multiple, over-asking offers to provide that push. In the long term, because of our geographically constrained town, there will always be a limited supply, which will push the market upwards over time.

DP: I think it will be slow to pick up in 2007, but strong in the second half of the year and then strong throughout 2008 (an election year).  Possible downturn in 2009 as the Democrats get to grips with the economy they will inherit.  Over a five year horizon, a 6% compounded price increase per year.



Question #2.
In what neighborhoods have housing sales slowed the most?  Why?  Does this create an opportunity for buyers?

Answers:
MR: The market segment that has had the least momentum is not necessarily a geographical area, but a housing category. Condominium sales are not as robust as single family homes. The supply is strong, thus an opportunity arises.

LdB: There’s a limited supply of grand scale, luxury properties right now. There actually hasn’t been much of a slow down of sales, just a shortage of property inventory. Housing sales have slowed a little in the south of market area, since it has recently been overbuilt.

CC: True, In spite of the geographic constraints, the City has seen a respectable expansion of its housing stock in the South Beach and South of Market areas.  There are many new construction highrise condos on line and many more in the pipeline.  This has created an oversupply and  greater market softness in these areas.  It creates an opportunity for Buyers by having competing properties vying for their business and resulting in more value pricing. 

DP: Also, in 2006 that neighborhood was Russian Hill where the volume of homes sold was down 31% and prices were down 15%.  It already has created an opportunity for buyers.

TG: Of course, there’s a buying opportunity when there is some “slowing”. However, buying opportunities all depend on the specific property and how realistically the seller’s pricing is.

BC: Right now, many owners are content and don’t have a real need or desire to sell, so the number of sales in several districts in San Francisco has declined moderately during the last few years. This means that buyers are competing for fewer properties.  This is what has helped contribute to our stable market and prices.



Question #3.
Are there some neighborhoods where homes are still receiving multiple offers above the asking price?  If so, where are they?  And why is this happening?

Answers:
TG: Yes, definitely. 9 of the 27 properties I viewed on Broker’s tour last week were already ratified. It’s happening because buyers want to be here, interest rates have remained surprisingly low, and there is confidence in the economy looking forward.

LdB: Multiple offers are occurring in Pacific Heights & Russian Hill. These neighborhoods have a limited number of good properties that are priced right.

MR: Also, single family homes in the southern and southwest areas of the city are still getting multiple offers in many cases. The supply in quality homes is limited.

BC: Multiple offers are being seen in many areas.  Multiple offers occur for several reasons that include, but are not limited to, shortage of available properties in the area to significant under pricing or the property. In my opinion, shortage of desirable properties in a particular area is the major reason this is happening in this current market.  Year over year statistics have shown that we have experienced fewer sales but increase in prices over the past few years.

CC: Although not necessarily the norm anymore, there are still some neighborhoods and some particular properties that are receiving multiple offers above asking prices.  A lack of inventory within a neighborhood or a price point causes this.  The supply of renovated, single family homes on the north side of town between 2.5-3.5MM has not caught up with the unsatisfied demand, so I think we will see multiple offers on this product type as inventory improves. 

DP: Most neighborhoods in the City, because multiple offers are driven solely by ‘correct’ pricing, i.e. a list price that presents good value and will entice more than one buyer to make an offer at one time.  That phenomenon can happen in any neighborhood and will be a feature of our market forever due to the advances in technology, which have made the launch of a new listing available to all interested parties instantly.



Question #4.
Is now a good time to buy a home and why?

Answers:
CC: It is a very good time to buy a home in San Francisco.  The market is more balanced now than it has been in the past several years, affording buyers the luxury of more time to evaluate their decision.  Inventory should greatly improve for all categories of properties as we head further into 2007, giving buyers more alternatives.  Interest rates continue to be at historically low levels which may be more beneficial to Buyers in the long run than a decrease in prices coupled with rising interest rates.

DP: The market is in a temporary lull and there is more property that buyers can choose from than we have seen in recent years.

BC: In my opinion, it is and has always been, a good time to buy in most San Francisco.  San Francisco  is a world-class city, has a stable real estate market, the business climate in SF and the Bay Area is good and growing, and interest rates are near all time lows.

TG: Yes, I think it is, as long as everyone is realistic. It is not realistic to expect double-digit appreciation each year, as in years past. But if this will be home for at least 3 years, from a historical perspective, it should be a great decision.

LdB: Yes, it’s always a good time to buy a home; you can’t go wrong.

MR: Yesterday is always the best time to buy in the city. How many times have we said “I could have bought this for a $100,000 less last year?”



Question #5.
Interest rates are still at historically low levels.  Why aren’t lots of potential buyers trying to buy houses before rates go up?  What’s stopping them?

Answers:
LdB: There are a lot of buyers trying to buy now, but there aren’t a lot of properties available. Today’s market definitely has more buyers than sellers. This will change however later in the year; there will be more property available to buy.

BC: Today’s buyers are very sophisticated and intelligent, they are taking advantage of the low interest rates. Buyers educate themselves on market conditions by going to open houses and use of the internet.  They do not want to overpay for properties.  Accordingly, they avoid the bidding frenzy we experienced during the dot com era which resulted in highly inflated prices in many instances.
 
TG: San Francisco is not experiencing a slow-down similar to the North, East or South Bay communities. Again, as long as the property is well located, appealing, and not over priced, it will sell.

MR: Every buyer, myself included, thinks maybe it will be cheaper tomorrow. That has never really been true in my 17 years in real estate. But, it is human nature to hope.

DP: Also, scary press reports that there would be a market correction, and possibly an actual collapse. The realization that the market is actually holding up quite well, particularly in San Francisco, will take time to become widely acknowledged (and may never be so by the doom and gloom press).

CC: True, the San Francisco market was either flat or slightly up during 2006, and this was in stark contrast to what the media said was in store for Bay Area housing.   Interest rates held steady, rising and falling by small amounts throughout the year. The buyers that waited were not penalized by losing out on much appreciation or low interest rates. If interest rates begin a consistent upward trend, I think that will push reticent Buyers into the market.