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Spring 2008 Issue
Market Update — Business (Almost) As Usual
When the news is filled with stories of economic woes and a national mortgage market meltdown, it's reasonable to be worried about what's in store for us. The statistical evidence I'm offering in this issue, however, points to a healthy spring real estate market here in San Francisco. All the bad news may affect us down the line, but — at the moment — things are still going up.
I'm seeing fabulous turnouts at my Sunday Open Houses — even on sunny days when you'd expect busy people to head to the beach. Just this week, many properties received multiple offers. Read on to see just how much properties continue to appreciate in Pacific Heights and other affluent areas, how more buyers appear to be seriously looking, and why I think the economic stimulus package is creating opportunities for first-time buyers with the guts to jump back in the game.
What does it all mean? Don't expect housing to go up 10% year-over-year like we've seen in the past, but look for steady 3% appreciation to continue in spite of a flagging national economy.
In addition to this quarterly newsletter, I'm going to start sending out exciting "new listing" emails. I want you to be the first to know what's out there! If you prefer NOT to be included in these notifications, please email me. As always, I look forward to your feedback and suggestions.
Check out Paragon's comprehensive Update Report for a wealth of information on current real estate conditions by neighborhood.
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The Economic Stimulus Package
High earners in the Bay Area won't get a $1,300 check from the government this year, but they will get something even better — an increase in conforming loan limits backed by Fannie Mae that translates into lower mortgage rates and a better buying climate.
Most people in this country don't have mortgages over $600,000, but we in the Bay Area do. The former conforming loan limit for low interest rates was $417,000 and that left us out. By raising the limit to $729,000 in high cost areas, the government hopes people will get back into the market and start using credit to stimulate the economy.
My private mortgage banker tells me that as of this writing, interest on a conforming 30-year loan is at 5.75%, a super-conforming 30-year loan is at 6.375% and a jumbo 30-year loan is at 7.25%. This is good news for first time buyers who were pushed out of the market because of high rates before, but can now afford to purchase a $500,000 to $1 million home. Equity line rates have followed the prime's descent and are now as low as they were two years ago. The rule changes also enable people who bought when rates were high to refinance and take advantage of falling interest rates on loans up to $729,000.
I'm advising buyers to take advantage of this rate opportunity. As for you sellers, look for strong offers in the coming months.
Click here to read the full announcement concerning Fannie Mae's "Temporary Amendments to Conventional Loan Limits."
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Paragon Makes a Move
There's a real estate renaissance happening along the city's Van Ness corridor and Paragon Real Estate Group is right in the middle of the action. In addition to developing a luxury condominium, The Artani, at 818 Van Ness, our company recently acquired the neoclassical building at 1400 Van Ness Avenue. Renovations are currently underway to transform the one-time auto showroom and former GoodGuys outlet into stunning new offices with a street-level cafe. As a co-investor in this property, I'm looking forward to moving in sometime in June of this year.
"1400 Van Ness is a physical manifestation of our success and an exciting opportunity for our agents to invest in a significant commercial building," said Sally Stull, who co-founded the city's fastest-growing brokerage with partners Bob Dadurka, George McNabb, Anita Head and Randy Zinn. "As far as we know, we're the only company offering agents a stake in the San Francisco landscape."
The Paragon family joins an expanding list of private developers who are rapidly transforming Van Ness Avenue into a vibrant center for business and downtown living. Affectionately known as the City's "auto row" following the 1906 earthquake and fire, the avenue will soon be home to more than 2,000 new luxury condo units. "It's taken a while for developers to fall in love with Van Ness, but now it's in full swing," says my Paragon colleague and commercial real estate expert Jay Pon. Pon predicts the area will soon be "a New York, cosmopolitan place to live and work, offering grocery stores, transportation and readily available healthcare all in one central location."
Read the full Luxury Real Estate.com story about our Van Ness acquisition.
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Leveraging Equity At the Bottom
If you've got equity in your San Francisco property and want to diversify or get better returns, now would be a good time to look at investing in markets outside of San Francisco that may be at (or close to) rock-bottom prices. Locally, areas like Contra Costa County and Sonoma County have been hit hard and there are some great buying opportunities. Without rent control ordinances, these areas are landlord friendly. Outside of the Bay Area and California, home prices have been falling for nearly two years.
Real estate has always been a long-term investment. As you can see from the graph below, if you are in it for the long haul, property is a great investment. We just may be near the bottom in many places.
One property that came to my attention is in Fayetteville, North Carolina. This 1950, two-unit residence includes a four-room main house and a detached cottage near schools and transportation for just $65,000. At current interest rates, the mortgage payment on this property would be $268.15 a month. It is already rented for $850 a month, and yes, it does have central heating and plumbing along with carpet, storm windows and ceiling fans. Take your profits and click your heels when you want to go home.
Click here for a better view of the North Carolina properties.
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Stats Confirm Median Prices Up in San Francisco
A review of median prices since 1990 shows San Francisco real estate continues to be a good investment as long as you're in it for the long term. According to the California Association of Realtors' data, median prices held steady just under the $300,000 range through 1997. Then prices began a precipitous climb that brought us to an all-time median price high of over $900,000 in July of 2007. Median prices for San Francisco dipped a little in early 2006 and early 2007, but quickly recovered.
Looking at median sales price appreciation by neighborhood, Pacific Heights reached an all-time median price high of $3,100,000 between September and March of 2008 -- a 318% increase in appreciation since 1994. Median prices in the Inner Mission went up by a whopping 472% in the same period.
Home values in San Francisco continue to hold steady or rise slightly each year despite the overall national economic downturn. A recent New York Times article noted that Yale University economist Robert J. Shiller said Manhattan and San Francisco are among "the backcountry cities" that have resisted the real estate slide. "They are just going through normal growth, and they are out of the bubble picture," said Shiller.
The San Francisco Chronicle's February 12 article about Bay Area home values based upon Zillow's calculations makes good points about "micro-climates" in the market, "Of the core Bay Area counties, only San Francisco shows appreciation for the year by Zillow's reckoning. Median home values were up 3.7 percent..." Unless you plan to get out in the next five years or you require double-digit growth, San Francisco is still a good buy in most neighborhoods.
Click here to see the full-scale graph from the CAR Economic Profile for San Francisco, which shows appreciation in the median price of existing detached homes over the past 18 years.
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Buyers Pass Up the Beach to Surf Open Houses
You'd think people would have better things to do on a beautiful sunny day, but they're coming out in force to see what's on the market now. At one of my listings in Alamo Square early this month, over 100 people came through and I ran out of sales sheets two weekends in a row. Similar-sized crowds toured three units in Cole Valley and a huge fixer-upper in the Dogpatch neighborhood.
Even though everybody seems to be talking about how bad the real estate market is, the high, steady turnout at open houses on weekends tells me that people are serious about buying. There are still incidents of multiple offers and bidding wars. In recent weeks, marketers of a top-floor, remodeled condo on Beaver Street gave out 63 disclosure packages and got 15 offers. A single family home in Noe Valley listed at $2.19 million had five offers after the first open house. Another Victorian at 17th and Dolores listed at $1.3 million drew 11 offers. We haven't seen this level of activity for over six months. I predict that, as spring rounds the corner to summer, more buyers and sellers will be reaping the rewards of a healthy market.
See this month's featured listing: Prime Cole Valley units.
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