Are there any real estate deals left in San Francisco? With 30-year mortgage rates still averaging a rock bottom 4 percent, applications to purchase homes rose after Thanksgiving to the highest level in four months. In the eyes of many real estate brokers, that makes any purchase made at this time a bargain!
Congress passed an appropriations measure in November 2011, which included a provision to reinstate the Federal Housing Administration (FHA) higher loan limit in high-cost areas, such as San Francisco, through December 2013.
A Freddie Mac report on lender offerings, released in mid-December, showed the typical rate for a 30-year fixed rate conforming loan to be 3.94 percent. Fifteen-year fixed-rate loans, a popular option for people refinancing homes they intend to stay in for a long time, now average 3.21 percent compared to 3.96 percent a year ago.
How does this help us in the Bay Area? With FHA loans, buyers can purchase homes or condominiums with only 3.5 percent down. That gets the entry-level market moving again, which allows the sellers of those properties to trade up.
When asked where he thought the bargains were in San Francisco real estate, Mark Skolnick, founder of the Real Estate Roundtable of San Francisco, replied, “Any apartment building you can still buy at less than ten times gross rents.” Those are disappearing rapidly, as the distressed portfolios that were over-leveraged at the height of the boom are being snapped up by savvy investors. Larrie Furst of TRI/Coldwell Banker estimates that a staggering $600 million worth of San Francisco apartments (consisting of six units or more) traded in 2011. The typical dollar volume from previous years was in the $100 million range. But with very low vacancy rates, starting rents increasing approximately 15 percent in the last 12 months, and even the annual limit for rent-controlled units going up to 1.9 percent on March 1, 2012 (from the previous year’s 0.5 percent), the apartment sector is seen as a much safer bet than other types of commercial real estate investments.
This has changed the equation between renting and owning for many people. With banks paying very little for deposits, those with cash in-hand are putting it into real estate. It has been estimated that as many as 40 percent of the sales in San Francisco in 2011 were all-cash transactions. A survey of the other Roundtable members resulted in a recommendation to look at the high-end condominium market, where prices are still depressed. For example, a unit in the Ritz-Carlton, which sold in 2008 for more than $2.2 million, is now being offered at $1,350,000.
Single-family home bargains in San Francisco are harder to find. One mid-1970s house on Cesar Chavez in Noe Valley was listed in December 2011 at $1.1 million and received 22 offers! The listing agent, Bernie Katzmann, thinks that even the few short sales in the city are selling at levels that don’t represent much of a discount from market value.
Lynnea Key, also of the Roundtable group, does see value in Midtown Terrace and Miraloma Park in the $750,000 range for a three-bedroom house. Newest Roundtable group member, Stephanie Ahlberg suggests looking in Marin. For example, a 2,300 square foot, bank-owned house in Ross was on the market in December for 50 percent of the $1.4 million it had sold for in April 2007. It is now in contract.
If something is well priced, expect to have to compete for it. If you see a 1,600 square foot Victorian house with potential in the Webster Street Historic District listed for around $1 million, jump on it! Three of those came up in the last quarter of 2011, and one was snapped up by a client of Roundtable member, Ian Berke. By mid-December 2011, the lowest priced house still being marketed in Pacific Heights was $3.4 million. But get your agent to look at the Withdrawn and Expired listings. Many, such as 2414 Webster, which was taken off for the holidays, will reappear this month. At a $2,897,000 list price, it was already the lowest priced house in Pacific Heights. While everyone else is distracted by the 49ers’ Super Bowl ambitions, you could be out looking for those bargains!
Footnote: The Real Estate Roundtable of San Francisco has been in existence for 18 years. Its members are Mark Skolnick (founder), Stephanie Ahlberg, Ian Berke, Sue Bowie, Tim Brown, Mary Lou Castellanos, Harry Clark, Andrew Herrera, Margel Kaufman, Lynnea Key, Pattie Lawton, John Lee, James Nunemacher, David Parry, and Wendy Storch. This group of 15 professionals from different companies meets monthly to discuss the market and to benefit from each other’s experiences. Mary Lou Castellanos represented the buyer of the highest single-family home sale in San Francisco in 2011, at a cool $29,500,000 (single-handedly improving the average sale price of the 45 Pacific Heights houses sold in 2011 by $600,000)!
David Parry is a broker with McGuire Real Estate. He has just completed 26 years in San Francisco real estate sales. He was president of the San Francisco Association of Realtors® in 2002. He is currently a director of the California Association of Realtors® and also of its majority-owned software subsidiary, zipLogix.
