Real Estate: Opportunities in a Down Market

By Tim Gullicksen

It has finally happened here. The real estate market is down in San Francisco. Both sales volume and prices are down, down, down. What does that mean for you if you want to buy or sell real estate in the near future? I believe that down markets can provide tremendous opportunities for both buyers and sellers.

If you are a seller who wants to move up to a more expensive home, now could be the best time. Consider that if the market has dropped 10 percent since you bought your $800,000 home you have “lost” $80,000. But if you are planning on moving up to a $1.2 million home then that 10 percent depreciation is a $120,000 “gain.” In the big picture you are still ahead. If you wait for prices to go up so that your current home is worth more you will pay more for the move-up house, unless you are moving to a different real estate market.

If you are a first time home buyer there are real opportunities in this environment. Sellers that have received no other offers are more than likely willing to negotiate with you on price, terms or both. Interest rates on mortgages are still very low. Many sensible buyers are concerned about paying too much in a declining market. Why not wait to see if prices go lower? The problem with that strategy is that you won’t know that the market has hit bottom until prices start to rise again.

Instead of trying to predict the bottom, consider your plans for the property you buy. If you can afford the payments comfortably and will own the home for five years or more why not get a place you love? Most economists believe that this recession will be over in the next couple of years. It is reasonable to expect housing values to rebound after the economy recovers.

Are you looking to invest? Investors understand the cyclical nature of the economy and are savvy enough to take a step back and reflect on the long-term prospects of markets with very strong fundamentals.

Our fundamentals, I would argue, are quite strong. California’s population continues to grow even as the number of new housing units being created has fallen. San Francisco’s housing market, in particular, is in an enviable position since it is supported by a broad-based and varied regional economy in finance, bio-tech and high-tech.

These investors realize that a down-market creates unique opportunities, to make above-average returns over a short to medium-term hold period – not because there is vulture pricing available, but because many investors are waiting for vulture opportunities and not seeing the fair-value opportunities that may be available. This leaves an opening for investors that have an eye for a good deal and a belief that certain markets will bounce back more quickly than others.

The most important consideration when purchasing a property – in this environment more than ever – is that you buy well. An established residential neighborhood with a walkable commercial strip and nearby transportation is more likely to remain desirable in the future. Buying a property with inherent charm or “wow” factor, like panoramic views, is your best insurance against falling values in the future. Great homes decline less in a bad market and appreciate faster in a good one.

This is why it is so important to have a trusted Realtor at your side when it’s time to buy or sell property. As we say at Domicile Properties “Invest Intelligently.”

Castro resident Tim Gullicksen is a Realtor and partner at Domicile Properties. He can be reached at 664-9000. For more information, visit domicileproperties.com.

Copyright 2009 Castro Courier