Hello My Favorite People! Last week Paragon agents were invited to a luncheon where speaker Leslie Appleton-Young, Chief Economist for the California Association of Realtors (CAR), offered up her real estate market update. What follows are some highlights of her talk, along with my personal opinions of what she had to say and how it relates to our San Francisco market.

As a major spokesperson for CAR, Appleton-Young is known for her pithy quotes in the newspapers. She was the one who coined the term “soft landing” when predicting a dip in the number of sales we could anticipate for 2006. Last week, she stretched the airplane analogy a little further and described the landing as “harder than anticipated.”

Looking back, the slowdown actually started in the last quarter of 05 after having peaked last summer. Today, we have a higher supply of inventory and fewer buyers. Some believe the changing balance of demand is an indication that prices will start to drop in San Francisco, the same way that they have been in some Central Valley and Delta communities.

Appleton-Young’s catchy name for where we stand now is “The Goldilocks Economy.” With a steady growth in GDP, inflation in check, solid (if unspectacular) job growth, and a low unemployment rate, we have a ‘not too hot, not too cold, but just right’ economy.

She did not think there would be a significant drop in prices. Economic indicators simply don’t support this scenario. Severe downturns in real estate markets (like the one we had in the early 90s) have always been tied to recessions or big job losses. On both a local and national level, we are experiencing neither event. Job growth is perking along at 1.5%, Gross Domestic Product growth is sitting steady at 3.5% and productivity gains and globalization are curbing inflation.

According to Appleton-Young, three major factors are creating the current slowdown in real estate sales: Rising interest rates, changing consumer expectations and the urgency of investors and speculators who now want to get out of the market. This shifting demand ultimately creates even more inventory as Sellers become anxious to sell while the market is still hot and developers want to move their product as quickly as possible.

By the end of 2006, she predicts that California home prices after slipping up and down will wind up 10% higher than last year. This will be in spite of rising mortgage rates, which she sees going as high as 6.7% for a thirty-year-fixed. One thing I disagreed with Appleton-Young about is her prediction about a steep rise in foreclosures as rates jump for those with 1-year, 2-year and 3-year ARMs. I believe that the mortgage industry will be able to respond to consumers trapped by rising interest rates with refi options that incorporate even more creative loan products, like 40-year terms or rates tied to lower indexes.

Because San Francisco is rife with condominiums, Appleton-Young’s observations about condos piqued my interest. Essentially, the two major markets for condominiums right now are first timers and baby boomers. These radically different kinds of buyers are served by different kinds of products. For those seeking to get a toe-hold on the market, modest town homes and apartments in new developments like Shipley Square or Broderick Place are perfect options. For the older demographic that can afford more square footage of a higher quality, the Ritz Carlton and the Watermark are offering units with big square footage and luxury amenities.

The main types of people buying (and not buying) today? Less active in the market are families who would be trading up—for now they choose to stay put while the market makes price corrections (unless personal circumstances like a relocation or financial reversal force them to move). In the meantime, we’re seeing lots of empty nesters, second home buyers, singles (a rapidly growing share of homebuyers), and multi-cultural and immigrant buyers. To illustrate the strength of the ethnic market, she showed us a chart that listed the most common surnames for Bay Area home buyers in 2005. The top three were “Nguyen,” “Lee” and “Garcia.”

Want to know more about the market in your neighborhood? I have all the stats right at my fingertips. Just call me and I’ll send you the information right away. And remember, I can make a real estate purchase or sale easy and fun—so please remember me to your friends and associates who are thinking of buying or selling.

This entry was posted on Wednesday, May 31st, 2006 at 12:00 pm and is filed under Market Conditions. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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