John M. Lee: Real Estate Market Heating Up

The spring selling season is upon us. The first quarter of 2012 flew by quickly, but it gives us an early indication of what the real estate market will be like for the rest of the year!

We entered the year with an 8 percent increase in sales year over year, but a 4 percent decline in the median sales price from 2011. The question at the start of the year was: Will there be an increase in sales and will prices will go up?

As we entered 2012 we were met with an economy that is on the uptick. The stock markets reached four year highs in the first quarter, unemployment numbers are finally starting to decline, consumer confidence is moving up, and the public is finally starting to see the light at the end of the tunnel.

Also, with the interest rates still so low, buyers are out in force looking to lock-in lower prices with a long-term loan to secure their future housing needs. This is a dramatic change in attitude from the past few years when buyers were still concerned that the real estate market had not hit bottom yet.

However, as with every year, inventory drops near the end of the year and going into the first quarter there is usually not much inventory. The same pattern occurred this year, but with the increase in demand, properties went into contract rapidly, resulting in even lower inventory. The Market Focus Report published by the San Francisco Association of Realtors reports the supply of single-family homes is at 1.2 months, meaning that if no other inventory comes on the market, it would take 1.2 months to sell all of the listed homes. This is a very low number and indicates that we are in a seller's market again.

The other factor that is causing this shortage of inventory is the reluctance to sell on the part of property owners. They also see the same trend as the buyers, and that is the market has bottomed and prices are poised to move upward. So, why sell if they do not have to? The forecast is that prices will be higher in the future, so they are holding on to the inventory until then, resulting in a shortage in our housing stock for sale.

The result was a very heated real estate market the first quarter of 2012. We are back to a market of multiple offers and bidding wars. For example, I have handled couple of listings this past month where I received more than 20 offers on each of the properties, which ended up selling for 10 to 20 percent more than expected.

Moving forward, there will probably be reports in the media that sales are down the first quarter of 2012, but that is because there was not enough inventory to satisfy demand. You might see that median prices are down, but that is because the sales that went into contract at the end of 2011 closed in the first quarter of 2012 and influenced the sales price numbers. Many of the actual sales in the first quarter of this year will not show up in the statistics until the second quarter.

For buyers, the time to act is right now. There were plenty of opportunities to get into the market the last two years, and we are near the end of that window of opportunity. Prices have increased this year, interest rates have inched up, and the market will be off and running before you know it.

For sellers, there has not been a better time to sell in the last four years. With a shortage of inventory and strong buyer demand, if priced correctly, you should receive multiple offers and get the highest possible price. But, also balance the selling decision with a hold and sell strategy as prices will be higher a few years from now as we are starting on the upleg of our next real estate cycle.

For people who are looking to trade up, this market is presenting an opportunity to reposition their real estate portfolio for the long-term and lock in a low interest rate now and pay it back with tomorrow's inflated dollars!

For people who have been considering refinancing and missed the bottom, it's time to take action now as interest rates have nowhere to go but up.

All of the economic signals we have been discussing the last few years are currently all aligned and we are poised for the next upleg in our real estate cycle!

John M. Lee graduated with an MBA from UCLA and specializes in the Richmond and Sunset districts. If you have any real estate questions, call him at (415) 447-6231 or send an e-mail to johnlee@isellsf.com.