Inside San Francisco Real Estate

It seems the question on everyone’s mind is how the stock market crash of October 2008 has affected activity in the local real estate market, ie: numbers of home sales.  We set out to find the answer, and here’s how we did it.

Are buyers and sellers in a stalemate?

First, we limited our search from November 1 through December 16.  The reason we chose November 1st is because there is a lag of activity in the market.  Many people were in escrow during the crash of  early October and ended up closing in late October despite conditions.  What we wanted to find out is how many people were willing to move forward with a purchase after the crash rocked everyone’s boat, hence the November 1 start date.  The reason we capped the search at December 16 is because today is the 17th and the 16th was our last full business day.

Next, we constrained our numbers to the City of San Francisco only.  No outlying areas are included.  Property types in these numbers include single family homes, condominiums, tics, lofts, and stock cooperatives.

Lastly, to get a point of comparison, we ran this query for each year during the exact same time-frame, going all the way back to 1995.  How did it stack up?

Sales Activity is at a LOW (click to enlarge)

What does this data tell us? 

First off, lending guidelines have tightened significantly (which we believe in the long term is a good thing).  This has made the pool of qualified buyers shrink since around 2006 and therefore less sales have taken place.  The next factor is of course what we’re writing about — the stock market crash.  Fear about the economy has undoubtedly played a role in 2008′s low number of sales during this period (only 368 sales).  That’s the lowest total in the 14 year history we analyzed.  It’s also 39% lower than 2007′s number of 605.

The peak of market activity during this time period was in 2003, where we had 898 sales, and again in 2004 where we had 897 sales.  Today we’re at 41% of the peak… an amazing statistic, especially considering it was just 4 years ago.

So what does this mean for the typical seller, buyer, and industry worker?

Let’s start with the sellers.  Sellers should be advised that buyer sentiment, confidence, and financing is at a historical low right now.  However, homes are still selling.  People are still moving and relocating.  People still need shelter and the tax code is still written to benefit homeowners over renters.  People still believe in real estate — even the banks, who will still give borrowers 80% of the money they need to invest in a property.  Try getting a loan to invest in the stock market.  It just doesn’t happen.  What does that tell you about how the banks feel regarding real estate as an investment?  If you need to sell, your price point and marketing will be the two keys to success.  Price aggressively and realize you’re dealing with a smaller pool of qualified buyers than in years past.  Your home will need to be presented in its most favorable light (think staging) and the broker you choose to represent you and your property will mean a heck of a lot.  Fortunately, San Francisco does not have the inventory problems that Miami, Vegas, Phoenix and other cities have.  This is one of the reasons owners here have fared better than in other locales.  If your property is less than desirable, unfortunately, you may have to drop your price to a point where waiting it out makes more sense.

For buyers, things are a bit more rosy.  If you’re looking to get into a real estate investment for the long haul, then you can play off the fear in the marketplace by scoring a good deal.  Interest rates are great.  Buying and holding is in.  Flipping, speculating, and ADHD buys are out.  Remember, we’re currently sitting at 41% of the sales volume from peak.  The savvy buyer knows that buying when no one else is buying is wiser than buying when everyone else is buying.  Think contrarian, and also think long term.  Lastly, people who are trying to sell in this market are probably pretty serious.  Otherwise, they would be better off waiting it out, right?  Does that tell you something about their motivation?  Use that to your advantage.

For industry professionals, times are undoubtedly tough.  However the plus is that the profession was long overdue for a cleansing.  Prospering from greed is short-sighted and out.  Propsering from honest, quality service over long periods of time is back in (thank God!).  So if you remain in the industry through the downturn, good for you.  Buckle up, keep giving good service and advice, and always keep in mind that there are plenty of opportunities no matter the market condition.  Help your clients understand and find them.

Hang in there folks. May the force be with you.

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