DataQuick reported April 17 that the median sales price of single-family homes and condos decreased in all nine Bay Area counties, with the exception of San Francisco, increasing 0.3 percent. It also reported that the number of sales were down about 21 percent in San Francisco, while other counties were down between 32 and 49 percent. This is consistent with other sources.
Most people will wonder how sales can go down and prices go up. It seems counterintuitive; in business, lower sales generally translate into lower prices. For example, if a store has inventory and cannot sell it, they would need to have a sale and reduce prices to get rid of it. If you book hotels or airlines with rooms or seats they cannot fill at the last minute, you can get a good deal because they have to reduce the price.
However, real estate is unlike these types of products. If you sell food, and there are no sales, you end up throwing inventory away with no further economic benefits. And if your hotel rooms and airline seats sit empty, you lose the money you would have gotten even if you had sold it at a lower price. However, if you hold on to real estate, it will appreciate over time; thus, the value will never go to zero like other products.
Also, if you think about the law of economics, what is going on in today’s San Francisco market is that sellers read all the ominous headlines in the newspapers, hear the negative reports on TV, and decide to hold back on putting their properties up for sale, waiting for a better market. Buyers hear and read the same things, thinking the market is still dropping, and hold off on their purchase decisions to wait for the prices to drop further. So, what we have is a shift downwards of both the supply and demand curves, resulting in a new price equilibrium, which in San Francisco is slightly up from last year.
What happened in the areas where prices went down substantially? What we are witnessing in those areas are many foreclosures and short sales, inflating the supply numbers with a dwindling number of buyers, thus less demand and lower prices.
So, the law of economics does work in San Francisco!
Chinese Real Estate Association of America member news:
Roddy Cheung moved from Washington Mutual to Bank of America. John M. Lee listed a 21st-floor-view condo in Montgomery-Washington Tower for $3.99 million. Chinese TV featured Eva Hom speaking on real estate. Allen Okamoto and John Yen Wong met with Genworth in San Francisco to brainstorm new product ideas. Betty Sun Wong participated in a Chicago Title/Fidelity National Title focus group on Asian marketing.
John M. Lee is the president of the Chinese Real Estate Association of America