By Joseph Lucier
With a potential real estate bubble becoming the topic of conversations all over the city—from cocktail parties to soccer field sidelines—one wonders whether this is a good time to purchase a home. While many people are looking forward, my two decade long tenure at Sotheby’s has shown us that there’s value in stepping back and taking the long view, to see what the recent past might teach us about the future.
For example, this past decade started as the credit bubble and real estate markets were reaching a bursting point, continued through the worst financial crisis in living memory, and then gave way to the meteoric rise in San Francisco property values, fueled by low interest rates and a voracious surge the Bay Area’s tech sector.
How would buyers have best positioned themselves in San Francisco’s residential market 10 years ago?
If Hindsight Realty LLC--my imaginary real estate investment firm blessed with perfect foresight-- had made a single family home real estate trade in 2006, it would have wisely invested in Noe Valley (up 82.1%). We would have also told clients to invest in Cole Valley (up 80.4%), more so than West Portal (up only 52%), though a 10-year bet in Pacific Heights would be looking good in 2016 (up 75%).
A decade ago, Hindsight would have also preferred Atherton to Ross, but it was close: Atherton rose 7.8% per year, compared to 6.2% in Ross. Outside the San Francisco Bay Area, our clients would have been better off in the Napa Valley. It’s true that the Carmel/Pebble Beach area usually beats the Napa Valley, but not over the past decade. But really, any of us would be happy to be recipients of the returns of prime locations in Northern California looking ahead in the decade to come.
So what are the greatest lessons from the past 10 years? It’s as much of a risk to be out of the market as in it. Gains (like falls) tend to come in a rush—as they did in spring 2012. Hindsight Real Estate gets timing right; you almost certainly won’t. For those who want to enter or move-up in the market now: Know what you know, and accept what you don’t; there has never been a greater amount of data for buyers or sellers. But one should not confuse information with expert knowledge. If you are serious about buying in this balancing market, hire a real estate professional with a broad scope of experience to help you identify where the opportunities and challenges lie in the nuanced landscape of this balancing real estate market.
Looking ahead, there are a few golden rules that never cease to be true. Always worry about the purchase price. You don’t know about future returns, but present values are known, and likely to be extended in the future. Location, location, location. Whether the market is up or down when you decide to sell, properties that are well located in San Francisco will always have qualified parties interested and will be better positioned to hold value even in stiff market headwinds. Identify expansion potential. No more land is being built in the city, but excavation, re-purposing an attic, or extending your building envelop creates value opportunities beyond market appreciation.
And most importantly, there are many more important things in life than exactly when you buy in a real estate cycle. Few of us have the privilege not to have to worry about money, but we urge our clients to deliver themselves from the agony of a real estate purchase to the greatest extent possible – and get on with the things in life that really matter...like enjoying your home!