San Francisco Real Estate - Residential

Who should you believe? Housing bust or slowdown? Mortgage rates rising or falling?

Are you as confused as I am? In this editorial I would like to point out a few things I have seen in the media the last couple of weeks or so. Not being a Realtor gives me the freedom to voice my opinion on market changes a little easier than a licensed real estate agent.

First we have been hearing how the housing market is in for a correction, and that there will be wailing and gnashing of teeth as we have seen reporting recently from NewMax (see the articles from July 29, July 30, August 12 and August 19 which were posted previously on our Blog) as well as other sources. And almost once a week on the evening news is a story about how the housing market is falling on hard times. The press seems to love bad news. In San Francisco we have seen a slow down in the number of deals being made. But prices seem to be holding relatively steady. There are some price reductions, but mostly from people who have become "velocitized" by the frenzied market of a year ago and priced their homes too high to begin with.

However, let me share the gist of an article in the August 2006 publication of Realtor Magazine. On page 22 in an article titled "Harvard: slowdown is merely a breather" the writer stated, "Cooling home sales nationwide won't last long because continuing strong household growth will fuel more housing demand." and cites a study done by Harvard University's Joint Center for Housing Studies as the basis for its conclusion. The article summarized, "Markets are seeing neither big employment drops nor overbuilding in housing supply - two conditions that precipitated price falls in the past."

Then on Sunday, August 20 in the San Francisco Chronicle there was a related article that supported the theory of a strong market entitled, "High home prices hamper fed recruiters" reprinted from the Washington Post which said, "A steady climb of housing prices and other living costs in San Francisco and Los Angeles is making it difficult for federal agencies to recruit and retain employees in those areas..."

So if you can read between the lines, doesn't this indicate that the San Francisco real estate market is still alive and well? Remember there are several factors that put San Francisco in a unique category. One is the amount of wealth that is found in the City. Two, it is a beautiful place where many people want to own a second or vacation homes. Three, the city of San Francisco area is a finite area of only 7 miles by 7 miles with very little construction of new homes or condominiums (most of the construction you see are remodels). And four, those who do venture into the arena of building new homes and condos find that the San Francisco City government is heavy on bureaucracy so it takes a long time to get plans approved and permits issued. All together these reasons cause a short supply ahd high demand.

Last but not least, another factor that will surely affect what happens in the market is interest rates. As you probably know by now, the Fed has decided to postpone raising interest rates for the time being as a slowing economy has eased their concerns about inflation. As a result, mortgage rates have dropped for the 4th consecutive week according to the Associated Press in an article which appeared in the same Sunday, August 20 San Francisco Chronicle issue quoted above.

So what does this all mean? Who has the crystal ball? As we have said before, real estate investing is a long term strategy. Given the information above, it's quite possible that the slowdown is only temporary and the strong economy could fuel another housing boom in the near future.

We'd love to hear your opinions on this topic! Send e-mails to info@sfresidence.com.

- Mick Orton

posted by SFResidence.com @ 6:47 AM