Real Estate Market Review
by John M. Lee
As 2017 comes to an end, we have had an interesting year in the real estate market.
The question that comes to mind is: Where is the real estate market headed?
The economy stayed strong in this area and affordable housing issues were again the
high-priority topics in the news this year. Following is a short recap of what happened in
our local San Francisco market.
The market remained steady throughout the year with historically low mortgage interest
rates hovering between 3.75 percent to 4.25 percent. We did see a slight uptick towards
the end of the year, which could indicate further increases to come.
We ended 2015 with an 8 percent decrease in the number of sales from 2014, and a
median price increase of approximately 15 percent. We ended 2016 with a 4 percent
decrease in the number of sales from 2015, and a price increase of 3 percent.
In 2017, our projected numbers of sales are about the same as last year, with about a
four percent increase in median prices. So, the trend is showing a leveling off in the
number of annual sales and a moderate rate of appreciation.
What does this mean? Have we reached a plateau? Is this the inflection point? In a
normal market for goods, when sales decrease, prices also decrease because
of lower demand. But, what we are witnessing here is a lack of inventory and buyers’
resistance to higher prices, thus restricting the number of sales. In other words, the
market is reaching an equilibrium.
The readers of my columns know that our market bottomed out in 2009 and we have
been in a strong recovery mode, resulting in large double-digit appreciation rates from
2012-2015. Over the last two years, however, the numbers reflect a leveling out of that
trend, with certain markets slowing down while others were still going strong.
Next month, we will look specifically at the west side markets of the Richmond and
Sunset districts. This year, the news continues to be limited inventory of housing
units for sale and multiple offers, though less than the last few years. This recovery is
similar to cycles we witnessed in the past. The number of sales and pricing increases
slowly initially (2009-2011), then rapidly for a few years (2012-2015), and eventually the
market levels off and even declines.
Towards the end of 2015, we started to see some buyer-hesitancy in bidding on
properties with multiple offers. So, activity slowed and price appreciation leveled out.
We saw a continuation of this trend in 2016-2017.
In San Francisco, we tend to lead the real estate cycle as compared with the rest of the
nation, and thus our market is being watched and analyzed all of the time. Both rents
and prices of housing have gone up so much that affordability has became the largest
concern amongst the residents of San Francisco.
The good news is that rents have come down somewhat recently and prices appear to be
leveling off, so perhaps affordability issues will start to moderate. The factor that will
affect our market moving forward is rising interest rates, which will decrease
buying power. The current sales of new condo units have increased the housing supply
and is competing for buyers’ dollars. As well, the higher prices have driven some people
away from San Francisco, resulting in less demand. All of these factors have led to the
flattening out of our real estate market.
I believe our prices have peaked, so if you are a seller, this is a great time to take
advantage of higher prices. If you are a buyer, I would recommend proceeding
with caution as price appreciation, if any, will not be significant over the next few years.
If you are a real estate investor, now is a good time to evaluate and perhaps reposition
your portfolio for the future.
I enjoyed speaking and exchanging e-mails with you this past year. Many of you had
some great questions and insights about our market and the Richmond and Sunset
districts. I wish you a very happy holiday season and a prosperous 2018!
John M. Lee is an agent at Pacific Union and specializes in the Richmond and Sunset
districts. For real estate questions, call him at (415) 447-6231 or email