The Upcoming Year

The number one question I am consistently asked as an agent is: 'where is the real estate market headed?' Everyone I know either wants, or already has, a prediction for what this year will bring. The following are my thoughts for the year upcoming, originally penned by Anita Head, one of the five founders of Paragon Real Estate Group late last year. Her thoughts mirrored my own so precisely I felt it was worth passing along with a few pertinent edits. It's a pretty concise overview of the past couple of years and what we are looking at moving forward.

2010 – The Unknown Country

First, a disclaimer from Meredith: I’ve been selling real estate for 15 years, and if I could predict the future, I’d be living on the top of the mountain in my castle. When it comes to the predictions of pundits: caveat emptor.

Secondly, some context: there was the crash after September 15, 2008; a dead zone until early spring 2009; and then the resurgence in sales that has continued through October. (More SF listings accepted offers in October 2009 than in any month in over 2 years.)

Home prices in the city have typically declined 15% - 25% from peak values, except for the areas hard-hit by foreclosures—mostly the less affluent southern neighborhoods—which saw declines of 25% to 40%.

Since San Francisco is a city of real estate micro-climates, the time of those peak values varied widely by neighborhood, from 2006 to mid-2008—generally. The less affluent areas peaked in 2006 and the most affluent in 2008, with the rest in between.

Foreclosure sales have been low compared to other counties, at about 15% of sales, the vast majority at the lower end (with some egregious exceptions). With confidence in the financial markets recovering, plus incredibly low mortgage rates, tax credits, the other huge tax benefits of home ownership in the US, and the significant decline of prices, home buyers suddenly woke up and started to buy in quantity. Especially first-time buyers. Pretty much all of our market segments have recovered from the crash, but the lower-end and mid-price markets remain much stronger than the upper.

2010 variables: interest rates, unemployment, foreclosures, tax credits, prices.

Interest rates will almost certainly increase from their historic lows, probably by 1% or so—and a 1% increase in interest rates equals roughly a 10% increase in price as far as monthly housing costs go.

My prediction is that unemployment won’t seriously impact our market. Foreclosures: some predict a huge black wave crashing down upon the market, even in the better neighborhoods. If so, and I have my doubts, that would indeed fuel further price declines, which would constitute additional opportunities for buyers.

The $6500 - $8000 federal tax credit is now scheduled to expire on April 30th, but I don’t expect its expiration to have a major impact on us. Still, as a buyer, I’d rather take advantage of it than not. And prices: median prices have been remarkably stable these past 4-6 months. I expect that stability to continue, with the market perhaps moving 3-5% down or up, or both in 2010.

Buyers: if your circumstances permit, and you plan to live in your new home for at least 5-7 years (the longer, the better), this is probably a very good time to buy. Hire the best possible agent to aggressively represent your interests throughout the process.

Sellers: price your home correctly from the start, prepare it to show in its best possible light, and hire the best possible agent to comprehensively market your home and aggressively represent your interests.

Don't forget to check out the Quick Links to view charts and statistics on the latest San Francisco Real Estate News for both the general and luxury markets.