John M. Lee Real Estate: Foggy Market Economics

In the past few weeks, DataQuick and the National Association of Realtors released reports of home sales that showed a 27 percent decrease year over year. In San Francisco, we have seen an 18 percent decline, not nearly as bad as the numbers nationally.

Recent stock market declines and worries surrounding the possibility of a double-dip drop in the housing market, caused some potential homebuyers to exhibit restraint and delay home purchases. Compounding the effect of these economic trends on home sales data are the seasonal summer slowdown combined with an especially cold June and July, which kept more buyers from touring homes than usual. However, despite the recent sales trends, the accelerating pace of job growth, combined with a continued decline in interest rates fueled by the Federal Reserve's purchase of treasury bonds, as well as tight inventory levels, should propel the market forward in the coming months.

As the effect of government programs aimed at stimulating home-buying activity recedes into the end of the year, improvements to the housing market are becoming increasingly dependent on job creation. Anticipated increases in payrolls through the remainder of the year should help drive year-over-year home price appreciation and tighter market conditions into the end of 2010. Though the market might be forced to take a few steps back during this fragile economic recovery, the overall underlying trend should remain positive.

As I have mentioned in the past, we have two major selling seasons in San Francisco, one in the Spring, from March to June, and the second from September to the end of November. This is due to buyers, sellers and agents focusing on holiday festivities in the Winter months and being away on vacation during the Summer months. Also, foggy days in the Summer cause buyers to stay indoors and away from house shopping. Thus, we are extremely interested in what the Fall will bring to our market.

Typically, with lower sales numbers, there is pent up demand that will enter the market and we are reaching that point again. San Francisco real estate has mystique and sex appeal along with it.

Housing numbers are, and always have been, a lagging economic indicator, following the trends of the local economy. In our marketplace, the high tech and biotech industries are doing extremely well. Most of the high tech companies are reporting good income results and forecasting even better numbers to come. Biotech companies are hiring more and more employees and making an impact in the area. Eventually, other industries will follow and our unemployment numbers will decrease.

Thus, we are monitoring the market for some good signs in the coming months. A number of tests stand in the way of the housing market's full recovery though. Distressed properties should continue to add to the for-sale inventory and restrain price appreciation, while the reduction in government assistance to homebuyers will force the housing market to rely solely on the recovery of jobs and consumer sentiment locally. Despite these headwinds, 2010 should remain a positive year for the San Francisco housing market.ÊÊÊ

John M. Lee is president of the San Francisco Association of Realtors.