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 

johnlee@isellsf.com.