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The "perfect storm" Real Estate Buying opportunity

by sfishome on November 11, 2008

Trying to time the market? Stop. This is it. Outside of the city of San Francisco in counties like Contra Costa, Solano and Sacramento, investors have poured into the market snapping up bank owned properties left and right. Sales are up 50% to 100% over this time last year, but prices are down 40% since the vast majority of sales are in the low price ranges. With all of those sales, prices will start to rise… and I’ve heard story after story of multiple offers and bidding wars on many of the REO’s… so prices won’t be going any lower there.

Meanwhile, in San Francisco, prices had held up, and even risen… until September. I’ve been referring to this time period as the “financial crisis market”. The well off still have plenty of money, but they are also the most educated about the financial markets, and they’ve never, ever, seen anything like what’s happening now and it’s given them pause.

Pausing has lasted 2 months now, and 2 months of very low sales has put downward price pressure on homes and condos alike throughout San Francisco. It’s had about a 5% impact on the “better” neighborhoods, and at least 10% and arguably 15% in over-supplied areas like SOMA and South Beach. In fact, some are saying the One Rincon and the Infinity, along with SOMA Grand, are offering up to 25% off… but then again they were over priced… I’m referring to 10% to 15% off what it was really worth, not off of unrealistic prices.

So… will San Francisco real estate go any lower? I don’t think it will… or at least it won’t be more than a couple more percentage points… and here’s why:

Buyers have come out of the wood works in the past month. Bargain hunters, first time home buyers, and investors have started to show up at Open Houses in droves. They smell blood in the water, and they all want to pounce. But this is the perfect storm… they think the market is going to go lower, so many aren’t offering yet. Many others are putting in outrageously low offers that are being rejected by Sellers. And many of the first time home buyers are in the education phase… they are afraid of making a mistake with the biggest purchase of their entire lives, and it often takes months of research and looking before they’ll pull the trigger.

The perfect storm has led to this 5% to 15% drop (depending on the neighborhood) and it’s my feeling that they are all going to start writing offers all around the same time… and that will start prices upward again.

Many Sellers are also responding by removing their properties from the market and renting them out, or staying there and waiting until Spring. Many who want to sell now aren’t even bringing them onto the market. So it’s a stand off, and once the Buyers realize it’s not going any lower, and the newbies are then educated, offers will start coming.

Meanwhile there are great deals right now… many of the Short Sales and Bank Owned REO’s are priced incredibly low… and they are getting offers. Offers means a bottom. If the Short Sales and REO’s were not getting offers, we’d have further to drop. And if Buyers were not flooding Open Houses, we’d have further to drop. If more Sellers had to sell now and didn’t have other alternatives, we’d have further to drop.

Finally, you add the increasing interest of Banks and the government to provide loan work outs with their borrowers, and that will reduce the number of Short sales and REO’s. Plus the LIBOR is incredibly low right now… so those with their mortgages re-setting right now are actually getting LOWER PAYMENTS… not higher. So their homes are becoming more affordable, not less.

Add it all up… and if you are a Buyer… recognize that now is the perfect storm. Conditions will continue to improve next year as lending eases, as rates stay down or continue to drop, as new construction is totally stopped in San Francisco so the current over supply gets reduced. Now you may argue that layoffs are yet to come and that will produce more distressed sellers… but I’d argue that smart resilient San Franciscans who are property owners will largely be able to weather that storm in ways that mid-west auto workers can’t.

If you disagree…. please share your comments. If you agree and are ready to start house hunting, start with www.Automated-HomeFinder.com or CleanOffer.com, or read some of the below articles.

REO search on the San Francisco MLS
Short Sales in San Francisco
First Time Home Buyer – where do I start?

Thanks for Visiting the SFisHOME Blog courtesy of Rob Regan. If you’re ready to Buy or Sell a San Francisco Property start with the best online tools for finding San Francisco properties: Condos, Houses, TIC’s, Income properties, Co-ops, High Rises, 2-Unit Buildings and more:

San Francisco Email Search — or — Live SF MLS Search Service

Automated-HomeFinder.com Free Access to invite-only CleanOffer MLS Service

Click any image button to get started with your favorite San Francisco home search service, or get your Home’s Value here:
Evaluate-My-Home.com

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