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September 24, 2010

San Francisco Home Prices Still Ripe for Correction

One question I’m asked frequently is whether home prices still have further to go. Because I’m not a gypsy and don’t have a crystal ball, it’s difficult to say with any sort of confidence whether this will be the case through the end of the year and into 2011. But I believe there are certain indications that prices will decline a bit more over the next year.

I check market activity every 24 hours at a minimum, and over the past couple weeks, have seen an average of five to ten price reductions on houses and condos. And the second time slot of my weekly broker tours (when the not-so-new properties are being shown) seems to be taking up a lot more pages than it used to. Sure, there are the anecdotes about how this $2M Noe Valley home slammed into contract in a week, or how that Potrero condo received multiple offers and sold for $50,000 over its $800,000 asking price. But in general, there are a lot of homes sitting on the market and waiting for buyers (774 houses and 865 condos, to be exact).

I’ve spoken with my colleagues and clients, and there is a belief out there that San Francisco home prices will drop by anywhere from five to eight percent. Now if you have a property that has parking, is located in a very walkable neighborhood with reasonable weather and has close proximity to Muni rail lines, BART, and the freeways, you can probably expect your property to hold its value fairly well. But for homes that don’t have such attributes, the situation may be slightly different. They could end up in the second broker tour time slot for a few weeks, until sellers price their homes at what the market will bear.

Buyers, now is the time to swoop in on a home you like—and have some fun with negotiation if there’s no one else beating down the seller’s door to submit an offer. I’ve written offers with two different clients this year on properties, only to see the sellers reject our offers initially. We then came back a few weeks later, and were able to come to agreement on lower prices. Sometimes, it takes sellers time to adjust to true market values.

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