As we head into the dog days of summer, it is a fitting time to look back on where we are in our San Francisco housing market. In talking with several colleagues over that past few weeks, it was apparent to all of us that our year started with more steam and market activity than we are seeing now. It seems that a combination of new lending standards and market uncertainty are continuing to sideline a large share of our buyers. The gamers who have thrown their hats into the ring can be pigeon-holed into two main categories: the wealthy and the brave. The high net worth buyers are snapping up quality properties without hesitation. Days on market stats are still very impressive for the desirable multi-million dollar homes. Those that I refer to as the brave buyers, could just as easily be called the smart buyers. These are everyday people like you and I that have reasonable down payments saved (20 percent) and realize that we are in a buyer’s market with near historically low rates. Let’s ink out a math equation everyone can understand: low rates + buyer’s market = green light! All things considered, San Francisco is still doing well. One only needs to turn on the evening news to realize our housing woes pale in comparison to what is happening in other parts of the bay area and country. We are in a slow down, not a stall. Many of our sellers have equity and interest rates they can live with. If their homes do not receive strong offers, some sellers now pull their home off the market and rent them rather than sell cheap. This behavior is helping support our median price. Let’s look at some numbers now to see how things are playing out.

One needs to appreciate that we certainly do not just have one housing market in San Francisco. We have many microclimates within our market. Beyond geographical separations, our market also varies by property type. For example, single family homes, condos, and lofts do not perform the same. Looking at the city as a whole 2007 closed about 9.2% behind 2006. Relative to 2007, we are currently down 20.7% in closings. According to Dataquick statistics, our S.F. median price dropped from $835,000 down to $790,000 (-5.4%) from May ’07 to May ‘08. 69% of single family residences (SFR) that are listed currently sell versus 58% of condos. The average days on market (DOM) for SFR’s is 42 compared to a DOM of 57 for condos.

Looking at things from a geographic standpoint, neighborhoods where at least 70% or more of the SFR’s listed actually sell include Sea Cliff/Laurel Hts/Outer Richmond (80%), Twin Peaks/West Portal/St. Francis Wood(75%), Noe/Eureka Valley(82%), and Marina/Pacific Heights(94%). Looking at condos in the same light, it is clear that demand drops off. Neighborhoods where at least 70% of the condos listed actually sell include Twin Peaks/West Portal/St. Francis Wood(70%), Noe/Eureka Valley(70%), and Marina/Pacific Heights(84%). The average DOM for condos in these areas is longer by about 6 days compared to SFR’s as well.

In regards to foreclosures and distressed properties, San Francisco has still managed to remain insulated from the large numbers of short sales and foreclosures that other counties are experiencing. Our latest real estate owned (REO) numbers show that San Francisco County has 172 homes owned by lenders. When you compare this to 5,499 in Sacramento County the difference is clear.

Historically, summer is a slow time for San Francisco real estate. Typically we will see a drop off in volume from July all the way until the end of September. In October we generally see an up-spike in activity just before things settle down for the holidays. It’s very hard to read into our future market at this point. The take home message from Federal Reserve Chairman Ben Bernanke’s recent address to the Senate Banking Committee on July 15 was that the only thing certain is uncertainty. Though our economy of late is showing slow growth, inflation is a huge concern.

Real estate is a very reactionary market. Things could really go either way for us at this point. The behavior of our buyers and sellers is not always rational and emotion plays big in residential real estate. It is many agents’ hope that folks realize that this is a very good time to be a buyer. To those who argue that we have not hit the bottom yet, I say that the bottom is only seen in hindsight. We will never know where the bottom was until we are past it and climbing again. Thus, the wise buyer would seize an opportunity to participate in a buyer’s market. Times like this are the times when the rich get richer. Opportunity abounds. It will be interesting to see where the chips land.

Rob La Eace, McGuire Real Estate San Francisco | Contact Rob

Signs and symptoms are two terms thrown around quite casually in colloquial language, so much so that the average person is likely to think they are interchangeable. Quite the contrary, in medicine, a sign is something that a doctor can perceive with his or her senses or detect with equipment. Pale or clammy skin is a sign, as would be fever measured with a thermometer. What then is a symptom? Symptoms are things the patient has to tell you. "I feel dizzy" or "My legs feel weak" would be examples.

"What does this have to do with real estate," you may ask. The public at large, including our friends, clients and the media love to focus on hard numbers and statistics. If a spike on a graph goes up, it must be a good thing, and if there is a downward deflection, well then it must be bad, they theorize. Though it is true that numbers don't lie, it is also just as correct to add that they do not tell the whole story. If statistics and raw data be the signs of the real estate industry, then what are the symptoms? Our symptoms are those little facts or gems of knowledge that we gather from colleagues, open houses, brokerage meetings and client interactions. They are the things we can't necessarily quantify, but they act as trusted indicators. With this in mind, let's look at both the signs and symptoms of our current market.

Since first quarter statistics are in, simply assessing San Francisco's market health based on the numbers alone tells one story. David Parry, a partner in my brokerage, compiled a detailed report comparing Q1 '07 to Q1 '08 with both single-family homes and condos/tics in different parts of San Francisco. The data show that volume of sales was down across the board citywide by 25.8% for single-family homes and 39.6% for condos/tics. So far as price appreciation, the only regions that increased in average sales price for single family homes were districts 4,5 and 6, which account for a good chunk of the center of the city stretching from Mt. Davidson through the Castro, and on to Lower Pacific Heights. Condos/tics fared a bit better, experiencing a 10.5% increase in average sales price city-wide. Mr. Parry is also quick to note in his analysis that it is the higher-priced properties that are bolstering the market.

Hockey legend Wayne Gretzky, arguably the greatest thing on ice (Belvedere vodka excepted) once said, "I skate to where the puck is going to be, not where it has been." The trouble with focusing too much on statistics is that they are simply recapping what has already happened. History is important, but even more important is a good focus on the present with one eye looking to the future. For this, our market symptoms are more helpful.

Listening in on our most recent sales meeting, one may have thought we were back in the bull market days of 2004. Managing Broker Aldo Congi reported that of the 38 properties he viewed on the Tuesday broker tour, 4 of them were in contract prior to hitting their first tour and 4 more had gone into contract in the past 24 hours! Another agent recounted that a 2-unit building had recently received 18 offers, 5 of them with no contingencies and 2 offers being all cash. A third colleague commented on an increase in preemptive offers. You won't see these comments in the paper, though. Bad news sells papers. Another symptom relates to the rental market. With rental prices and demand on the rise, sellers who don't succeed in selling their home for asking prices are becoming landlords at an increasing rate--opting to lease their home for a spell rather than reduce the price just to sell. In many situations, this creates a winning solution by preserving values of both the home that was for sale and the others in the neighborhood. At the same time, this conditions buyers to be reasonable in their expectations. There just aren't that many deals out there. We're not in Antioch, folks.

When we balance the hard data signs with the intangible symptoms we can see that our market is faring well, all things considered, and there is little reason why it should not improve through the next 3 quarters. With interest rates at near historic lows, the new conforming loan packages in place that are set to expire on December 31st, and a market-favoring buyers, we have all the makings of a real estate perfect storm. It simply will not make sense for buyers to continue to sit on the sidelines.

Rob La Eace, McGuire Real Estate San Francisco | Contact Rob

A south side: Every old-school town seems to have one. My mind conjures images of Rocky Balboa on an early morning training jog through Philly, South Side Italian market. On Chicago, South Side sprawled the world famous Union Stock Yards , the area still home turf for the Chicago White Sox. The Boston southies are known throughout the country for their tenacity and toughness, and San Francisco is no exception, but boy, has our south side changed. South of the Slot was a term once used to describe the area south of the Market Street cable railway line. Though there were in fact two tracks, they were dubbed the Slot by locals and the term was exalted by local author Jack London in his Saturday Evening Post piece by the same name, first published in May 1909, London wrote:

North of the Slot were the theaters, hotels and shopping district, the banks and the staid, respectable business houses. South of the Slot were the factories, slums, laundries, machine-shops, boiler works and the abodes of the working class.

Clearly, the face of our city, south side has changed dramatically , and no doubt for the better. The forest of construction cranes visible south of Market Street shows just how the city is stretching and growing in the only direction it can south.

These new residents south of the slot arena, factory workers, carriage drivers, machinists, bakers and boilermakers (at least not in numbers). So, who are they? What is their profile? Based on my personal business experience and preconceptions, I had my theories. However, any good cub reporter must go after the facts. Though the three districts , SoMa, South Beach and Mission Bay , account for the bulk of what would be considered South of the Slot, in the interest of accuracy, I narrowed my scope to only focus on Mission Bay. Once I was on the case, I picked up the horn and spoke with two industry experts to get the scoop. I chose two developments that sit across the street from each other, yet are quite different in many respects.

I first spoke with Aaron Cortez, sales manager with Park Terrace, an Opus West Corp. development located at 325 Berry St. This brand new seven-story mid-rise project consists of 110 units including one-, two-, and three-bedroom condominiums and town homes. The Park Terrace sales team has found that they seem to have four main categories of buyers: Empty-nesters (often from the Peninsula), young techy professionals (see GOOGLE/YAHOO), healthcare/biotech industry employees (see Kaiser/Genentech) and financial services executives. The bulk of the one-bedroom buyers are in their late 20s to late 30s. Park Terrace attracts a less urban and more of an outdoor/nature enthusiast. The floor plans, generous in square footage, are pleasing to the more mature buyer who is drawn to the larger units. With 80 percent of the units sold, it is clear that the market has spoken , finding value and appeal in this project. With private, dual suite-style floor plans, high-end finishes, gas cook tops and nine-foot ceilings, it, clear that Park Terrace is supplying what the market demands.

Would Arterra, just across the street from Park Terrace, attract the same buyer? I set out to find the answer. Arterra is San Francisco, first green residential highrise. Located at 300 Berry St., Arterra consists of three interconnected buildings with a total of 269 homes. There are one-, two- and three-bedroom floor plans with town homes, as well. I picked up the phone and spoke with Arterra, Sales Office to try to understand their typical buyer. As it was explained to me, that prospective buyer would often be a 30-45 year old single professional. The majority of Arterra buyers will use their homes as their primary residence. Most of them work in San Francisco, but due to the building, proximity to the Caltrain station and Interstate 280, Arterra has its share of South Bay commuters. Like the Park Terrace resident, the Arterra resident is often working in either healthcare or biotech. With the nearly 60 acre UCSF Biomedical Research Campus just a stone, throw from Berry Street, it, no surprise that this area has attracted some science-types. UCSF, Website states that upon completion in the year 2020, this campus will have a full time population of 9,000. Owning in a green building, however, does not seem to be the most important aspect of owning at the Arterra. Buying green is icing on the cake, making owners feel good about their purchase. Ultimately, location, floor plans and views (the same things that drive sales in other developments) seem to matter the most. Keeping it green, Arterra has planned to allow a Zip Car-style vendor to offer vehicles for daily hire from within the building, own garage. This will allow residents easy access to a vehicle should they choose not to own one. Great idea. Peace, love, and granola for everyone!

As it turned out, this cub reporter learned that although these two buildings differ in style and amenities, they both seem to be attracting a similar Mission Bay buyer. Keep an eye South of the Slot. Big things are happening.

Rob La Eace, McGuire Real Estate San Francisco | Contact Rob

And we're off! After an interesting December which showed mixed results based on price point, the San Francisco real estate market is heating up quickly despite nippy temperatures in the 40's as of late. Our weekly sales meeting last Wednesday at the Lombard St. McGuire Real Estate office was a wonderful omen for the first quarter. With standing room only, Aldo Congi, McGuire VP and Managing Broker of the Davis St. office, recapped the properties he had personally viewed on the Tuesday Broker Tour. Even in the early days of January, it is clear to the agents of San Francisco that inventory is improving both in quantity and quality. The end of each meeting is reserved for agents to announce upcoming listings they have that are not yet entered on the MLS. Property addresses were fired off one after the next like drink orders at an open bar wedding. Each property's price point and description seemed to trump the last. Further evidence of a robust first quarter was provided as Mr. Congi recapped some recent properties that were listed and are now under contract--at above asking prices!

I can personally attest to the strength of the market with my own current deal flow. I placed two luxury condominiums on the market two Sundays ago. One unit was in contract in 3 days and I continue to receive inquiries about its availability from agents whose buyers were too slow. I have been advised by an agent representing an interested buyer that my second unit should receive an offer shortly as well. Furthermore, a 3 bedroom/2 bath TIC listed at nearly one million dollars came on the market this week. I had two buyers who moved quickly on it, making and undisclosed over asking offer to strike a deal with the seller prior to the property holding its first Sunday Open house.

As we've established what is present, let us peek now at the "interesting December" I alluded to in my opening paragraph. As we simply do not have one housing market in San Francisco, I ran data in three different price ranges: $0 to $999,000, $1m to $2.5m, and $2,501,000 to $5m. As an all encompassing study of our market would necessitate volumes of statistics and analysis, I have studied one snap shot of our San Francisco real estate market by solely focusing on the north side of town. The San Francisco MLS data gathered is from Pacific Heights, the Marina, Cow Hollow, Presidio Heights, Russian Hill and Nob Hill.

Based on price point, some interesting patterns were visible. In property under one million dollars, the median sale price dropped from $699,000 in 12/06 to $615,000 in 12/07 (12% decline). In 12/06 and 12/07 the number of homes for sale was nearly the same (101 and 108 respectively). The average days on market (DOM) changed significantly from 52 in 12/06 to 72 in 12/07.

For properties priced from 1m to 2.5m there was no significant change in a year to year comparison. In 12/06 the median sale price was $1,395,000 and in 12/07 it was $1,375,000 (1.4% decline). In 12/06 and 12/07 the number of homes for sale was similar as well (58 and 54 respectively). Surprisingly, there was a decrease in the DOM with homes, on average, selling in 34 days in 12/07 versus 48 days in 12/06.

Finally, looking at north side property priced between 2.5m and 5m dollars there was positive news regarding median price, which increased from $3,132,500 in 12/06 to $3,474,500 in 12/07 (10.9% increase). There were 100 homes for sale in 12/07 compared to 86 in 12/06, however the DOM for these properties spiked significantly from 18 in 12/06 to 45 in 12/07! Summary, the higher end market is still very active, but units are taking longer to sell. This statement is backed by examining the ratios of homes for sale to homes sold. In 12/06 the ratio was 86 for sale to 2 sold. In 12/07 the ratio was 100 for sale to 8 sold.

As the sun is setting noticeably later, it is clear that spring is not far away. The next few months will be very interesting to watch as they will likely set the tempo for the year. Stay tuned for more.

Rob La Eace, McGuire Real Estate San Francisco | Contact Rob

In the event of a water landing, an aviation euphemism for a "crash", to avoid becoming disoriented, pilots are trained to follow the bubbles to the surface. The bubbles each become meaningful indicators-guiding the downed crew to safety. While our San Francisco market has by no means crashed, I'm sure even agents experiencing personal bests in this market would like to see some signs of hope. Will 2008 bear those indicators? If only we knew for sure. You can find industry experts that would take either side of that argument. As we exit our downed plane, let's gather our bearings and watch the bubbles. They are all around us-each one indicating the direction our San Francisco housing market will travel in 2008.

To better understand where we are going, we must first define where we are. Overall, our median home price in the city is up over 2006 numbers. Through September, the average of monthly medians comes to $797,000 compared year to year with 2006 which came in at $777,000. When one examines individual property types (see lofts) though, that statement is not always true. The median sale price for lofts between 9/06 and 9/07 was down almost 13 percent. I don't want to focus too much on median price, however. The fact of the matter is that median price stats can be misleading as they are influenced by the size or cost of the homes sold. On face value, median home price is not a definitive indicator of a market health. This said, most agents would agree that homes that show well, and are priced correctly are still selling in San Francisco.

But, enough about the past and present. Let us now look to the future. "Rob, what tools will help us predict the '08 market?" you ask. Rune stones, Tarot cards, perhaps we could read tea leaves? How about the Magic Eight Ball? No my friends, remember, we're following the bubbles.

My feeling for our 2008 market in San Francisco is that barring an unforeseen event of significant magnitude (earthquake, terrorist attack, Peets running out of coffee), our market should hold the line, if not appreciate (there I said it) modestly in most neighborhoods. Expect the 1 million to 2.5 million dollar range to perform well. The $600,000 to $900,000 range's success will be more hit or miss-depending on quality and location. The lower price range inventory will likely only see trouble in less desirable neighborhoods It's hard to believe that with counties like Sacramento bracing for more doom and gloom, that we can expect such a different outlook, but we can. Why? Because we're different.

Continued demand for housing in a 49 square mile area with limited room for expansion should prevent San Francisco from experiencing anything close to the fate of some neighboring counties. Many of the factors that the media relentlessly brings to light as causes for our housing woes simply won't be issues. According to Mayor Newsom's recent State of the City Address, San Francisco's unemployment rate is at 4.2 percent. The national average is 4.7 percent according to the Bureau of Labor and Statistics-a six year low. Not only is our unemployment low, but we are adding jobs to the city at a healthy rate. The digital media, biotech, and cleantech industries have and will continue to bring well paid residents to San Francisco. Just one project such as the Letterman Digital Arts Center has bred thousands of new jobs. And don't forget that the dotcommers are still here and there are more arriving. The age of the reverse commute has arrived. These young, driven individuals thrive on the work hard/play hard philosophy. They'll CalTrain down to Oracle or toodle their Hybrid to Genentech for the day. But, when the work is done, these professionals demand the nightlife, cultural, civic, and athletic activities of a major city, and they choose San Francisco. Google, YouTube, Yahoo and all of their employees won't be going anywhere soon.

Another major San Francisco industry is tourism. 15.7 million tourists visited our city in 2005 and 15.8 million in 2006 according to the San Francisco Convention and Visitors Bureau. The bureau also sites that hotel occupancy rates are at their highest in years-hitting 88.2% in August of 2006-up 5.5% from the same time in 2005. Increased flight volumes into SFO from our mainstay carriers, coupled with the recent additions of Virgin America, Jet Blue, and Southwest to our airline portfolio are reflective of SFO's growth since the post 9-11 drop off. Noteworthy is Aer Lingus' recent addition of 4 weekly non-stops from Dublin to SFO. "Dublin?" ya say (it's more fun with an Irish accent). This flight symbolic of the growth in commerce between S.F. and Ireland's capitol-mainly tied to the tech industry.

The foreign factor will be important to keep an eye on. According to the 2007 World Wealth Report, there are 9.5 million people globally that hold more than 1 million dollars in assets and global real estate spending was up 38 percent in 2006. According to NAR's 2007 Profile of International Home Buying Activity, of U.S. homes purchased by foreign parties, 31 percent were in the western U.S. The top five individual countries accounting for purchases were the Mexico, the U.K., Canada, India, and China. Goldman Sachs projects India to become the world's 4th largest economy by 2025. With the weakness of the dollar to the British Pound, Euro and other currencies, expect international clientele to be coming to San Francisco and buying our real estate at "sale" prices. I'd love to get a 2:1 exchange rate on my next home purchase, too! P.S.,foreign buyers show a strong preference for condos. Hmmm, seems we have a few of those spouting up around town, don't we? Couple the fact that locally, California is home to approximately 90 billionaires, it becomes clear that there should not be a lack of ready, willing and able buyers. If it is any indication, I just entertained 100 Realtors visiting from Russia last weekend. They are here to find properties for clients from the former Soviet Union.

So, as you can see, there are a lot of reasons to support our prices. There is a scarcity of supply and ample demand for S.F. real estate. California is home to 9 percent of the U.S. work force and is the 8th largest economy in the world. Unemployment is low, job growth is healthy, our local rental market is heating up quickly only leading to greater desirability to own investment properties. We haven't even touched on the demand that will be created by our new class of wealthy: the baby boomers or their demand for second homes.

Addressing foreclosure fears, our notice of default numbers are extremely low in San Francisco (257 in Q2) compared to Sacramento (3,840 in Q2). The alternative minimum tax relief bill that could have potentially taken money out of middle class family's pockets is nearly guaranteed to be postponed by the House and Senate as well. Regarding the sub-prime fallout, the tightening of lending standards-particularly the new lower loan to value ratios, requirements for larger down payments, and elimination of many stated income loans will affect some buyers. However, low rates combined with our financially healthy buyer population should be enough to overcome these obstacles.

One major wild card in the deck that we haven't seen played is public perception. The same irrationality that made many buy even at the peak of the market can make people not buy. Most folks not employed in the real estate industry tend to believe that whatever they read in the Sunday paper, is what's happening in their market. We all know it's not that simple All things considered, we should march into 2008 confident that our wonderful city will avoid a major market crash. She really is a special place and it's clear that others have and will continue to notice. So, continue to watch the bubbles, but from where I am, they are floating upward and look to be a promising sign.

Rob La Eace, McGuire Real Estate San Francisco | Contact Rob