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

their homes.

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

johnlee@isellsf.com.