Local market update
The spring selling season is upon us. The first quarter of
2017 flew by quickly and might have given us an early indication
of what the real estate market will be like for the rest of the year.
We entered the year with a 3.8 percent decrease in sales
year over year, but a 3.3 percent increase in median sales prices
from 2015 to 2016. The most important question at the start of
the year was whether or not the increase in prices would continue
and if it would encourage more sellers to put their properties
on the market?
In the first quarter of 2017 we had a rising stock market, which
has gained about 15 percent since the presidential election in
November, 2016. Unemployment numbers are holding
steady, consumer confidence is about the same and real estate
buyers are responding by cautiously buying homes.
Despite the increase of a quarter percent in the Fed Funds
interest rate in December, 2016, and another quarter point in
March, 2017, mortgage interest rates have remained at historical
lows, thus buyers are still getting a great deal by borrowing at today’s
interest rates and paying it off with tomorrow’s dollars.
As with every year, inventory decreases near the end of the
year and going into the first quarter there were not many
homes for sale. The same pattern repeated this year, but, with
good demand, properties went into contract rapidly, resulting in
an even lower inventory. Market statistics published by the SF
Association of Realtors show the monthly supply of single-family
homes is at one-and-a-half months, meaning that if no other
inventory comes on the market, it would take that long to sell all
of the listed homes. This is an historic low number and indicates
that we are still in a strong seller’s market.
The end result is a very competitive real estate market so far
this year. We have seen multiple offers and bidding wars with final
sales prices much higher than the list prices for most properties.
I have handled listings with upwards of 10-plus offers and
they sold for substantially higher prices. This normally happens at this
time of the year, when inventory is extremely low and we have
seen a declining inventory and number of sales for the past
three years. There are several reasons for this and most of
them have to do with financial implications. Many home owners
in San Francisco have realized substantial appreciation on
If the gain is larger than $500,000 for couples or
$250,000 for those filing single, they have to pay capital gain taxes
on their gains higher than these amounts. Also, if they
were to purchase another home, their property taxes would be assessed
at the purchase price. In many cases, this is much higher
than what they are currently paying. Thus, the decision oftentimes
is not to sell, limiting the amount of inventory coming
onto the market.
Moving forward, I do anticipate more inventory coming on
to the market in the springtime, which will help moderate pricing
pressure. For buyers, I urge them to be
cautious as prices are high now and might come down in the
near future. Prices have increased this year, but interest
rates have remained low, even though they are poised to go up
soon. Locking in a loan at current interest rates makes a lot of sense.
For sellers, current prices might be the best that will be
seen for a while. With a shortage in inventory and strong buyer
demand, if priced correctly, you should receive multiple offers
and get the highest possible price.
For people who are looking to trade up, this market is daunting
as selling is easy, but finding a replacement property presents a
new set of challenges. For people who have been considering
refinancing, it’s time to take action now as interest rates have
nowhere to go but up. All of the economic signals
are positive but most experts are warning that we are at a peak in
the market’s cycle. We are poised and positioned for a cautious
real estate year in 2017!
John M. Lee graduated with an MBA from UCLA and specializes
in the Richmond and Sunset districts.
For real estate questions, call him at (415) 447-6231 or e-mail