"Signs, signs, everywhere there's signs..."
So, what are the signs we should look for to help us forecast San Francisco real estate?
I'm gonna "KISS" 2008 good-bye with 4 "Keep It Simple, Stupid" topics to keep an eye on.
The 4 Pillars of 2009 San Francisco Real Estate Forecasting
Simple enough, right? I am not a trained economist though I did suffer through a few econ classes at Wesleyan.
I am a trained San Francisco Realtor who works actively and full-time in the trenches with today's home buyers and sellers. Don't take my advice as the gospel but please, don't take the Case-Shiller Index that way either! (What is the metropolitan SF Bay Area anyway? Cow Hollow = Dublin/Pleasanton?
1. Our local San Francisco real estate market will be determined by the ease of loan modification for existing home owners who are in over their heads. Watch for public AND private action on this front: government programs and what the banks are doing on their own.
2. San Francisco real estate is expensive. Most home buyers here require jumbo loans. The credit liquidity crisis eliminated most jumbo loans. Or rather, it eliminated the 2nd loan market. Without an enormous down payment, San Francisco would-be home buyers were mostly out of luck. This kept many qualified home buyers out of the market, both upscale first time buyers and "move-up" buyers (home owners hoping to upgrade home, neighborhood, etc).
EXCEPTION: FHA Financing now available in San Francisco. With 3-5% down payment, home buyers can get 30 year fixed interest rate loans on single family homes and a very select group of condominiums. The maximum loan amount is about $625,000. This program works in the outer lying San Francisco neighborhoods. Think District 10. For example, clients of mine are in escrow on a lovely Marina-style home in Outer Mission. They are getting a 30 year fixed rate loan at 5% with 3% down payment!!!
Watch the jumbo loan market. Specifically, watch the 2nd loan market. As credit loosens and qualified home buyers (good credit, jobs, savings) with 10% down payment or more can get better loans (with better rates on 2nds or private mortgage insurance), home buyers will jump at the chance to buy SF real estate at a discount. Don't miss out.
EXCEPTION: There are some very good 10% down payment options right now. Because prices are down, it may make financial sense for you to buy your condo now with the PMI payment. PMI is not permanent. Take advantage of the current pricing discounts to get in. For example: Clients of mine recently bought a stylish, totally redone 2 bedroom Bernal Heights condo with 2-car parking for $750,000 with 10% down payment. Yes, they have PMI payments but they also bought a condo worth more like $825,000 2 years ago...and they love it, have tax savings, and are building equity over the long-term. They'll get rid of the PMI payment in a year or so.
3. Keep an eye on interest rates. Please don't be fanatical about this and please don't choose your mortgage broker by what they quote you on the phone!
Do keep up with rates in a more general way. It's pretty obvious but if rates stay down (and it's likely they will given the overall economy), San Francisco real estate will begin to rebound. Most of us aren't dummies. We know that 30-year fixed rate financing under 6% is CHEAP MONEY. We know it'll benefit us over the long-term to borrow at these historic lows and own a piece of high demand, low supply San Francisco. Yours truly is in the middle of a refinance.
4. Do not under-estimate the effects of social psychology on the markets and the economy.
This is one example of when you should keep up with the Joneses... at least keep up with how they feel. Are they feeling good about their jobs, lives, politics, the economy, etc etc? Are they beginning to feel more optimistic or do they feel the sky is falling, tomorrow? What's the tone, feeling, energy, attitude in your local cafe, in the line at Whole Foods, at the hot new restaurant. What are folks talking about?
As the general outlook improves, the real estate market will pick up.
For many strange reasons, we tend to buy high and sell low. We do the opposite of what we should do...and it's because of social psychology. My advice and that of my man, Ben Stein (very paraphrased): Pay attention to the herd so you know what NOT to do.
Happy new year! Here's to a very happy, healthy, prosperous, and fabulous 2009. Make it so.
Resources:
"Early Work-Out" Loan Modification
(Danielle's note: Many programs apply to Fannie, Freddie loans and will not directly relate to most San Francisco home owners. However, the word on the street is that banks are more and more willing to help by making a deal with you. Call your bank. Act early. Be proactive. Try your best to get a hold of someone with authority. I've heard of websites that give out the executives' email addresses. Loan modification is what will get us out of this ****. Best of luck and G-d speed!)
