Welcome to my new blog!

Welcome to my new blog! I'm a San Francisco real estate agent and investor. This blog will focus on Bay Area real estate, but will also take detours into finance and economics, which are my other strong suits.

Let's get started.

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If you live in San Francisco, you may be surprised to learn that most Bay Area housing markets have fallen significantly from their peaks. According the CAR, as of August of 2008, median home prices in six of the nine Bay Area counties have fallen by over 30% from their peak values. In contrast, the San Francisco market has held up pretty well. Median prices here have changed hardly at all in the last year, and are still within 10% of their peak, which occurred in May of 2007. That may be about to change, however, as a result of the recent stock market turmoil.

The stock market has fallen dramatically in recent weeks, and is currently around 35% below its 52-week high. Even including today's 11% gain, it is still 20% below its level of just 30 days ago. What will this do to the San Francisco housing market?

Let's consider a hypothetical buyer who’s looking for a $700,000 condo. With solid credit and fully documented income, he should be able to purchase his condo with only $70,000 (i.e., 10%) down. I say 'only' $70,000, but that's a substantial amount of money. Most people with that kind of money will have a least some of it invested in the stock market. Let's say it's 50%. That's $35,000. Or rather, it was $35,000. In the last month, that $35,000 balance will have declined to around $28,000, meaning that our buyer now has only $63,000 to put down. Unless he has additional cash to cover his $7,000 loss, his maximum purchase price will now be $630,000, not $700,000.

If you've ever had your heart set on a $700,000 condo, and have then been told that you'll have to settle for a $630,000 unit instead, you'll realize that this transition will not go smoothly. Any serious buyer can readily distinguish a $700,000 condo from one that's worth only $630,000. Many of these people are likely to bow out of the market, at least temporarily, rather than settle for a unit that they wouldn’t even have considered a month ago. That will lead to a painful period of slowing sales and declining prices.

This cartoon picture does not apply to every buyer. For starters, some will have much more than $70,000 to put down on their $700,000 purchases. And of course, this is all subject to change as stock prices fluctuate. But if today's dramatic stock market bounce is a one-off event, then look for continued slowing in the San Francisco market.