Bye Bye Boom! Real Estate Bust In San Francisco

\"Price reduced\" just entered the San Francisco vocabulary.
In most areas of the country, even as the economy slows, home prices appear to be steady.

Here, though, the only thing steady is the frequency of the term \"price reduced\" used as a promotional pitch. \"The writing is on the wall,\" says Sue Kirkham, a broker with T.R.I. Coldwell Banker in San
Francisco, who has been in the residential real-estate business for more than 15 years. \"We\'re starting to see price reductions, and properties not getting offers. It\'s quite amazing how quickly adjustments are getting
made.\"

With the stock market staggering, the technology sector sagging, and
consumer confidence slacking, more sellers in the city are cutting their asking prices, particularly for lofts in the previously hot dot-com
territory known as the South of Market area.

So far, there are no serious warning signs of a dramatic downturn, says John Karevoll, an analyst at DataQuick Information Systems, a
real-estate data unit of MacDonald Dettwiler & Associates Ltd. Entry-
and mid-level homes are still selling, and buyers \"are not borrowing more than they were a year ago, and they\'re not taking out riskier mortgages,\" he says. \"It\'s astonishing, but all these indicators are stable.\"
Meanwhile, bidding wars on some properties persist. So far this month, most of the
homes and condominiums in San Francisco sold at their asking price or more,
in some cases 35% higher, according to data compiled by T.R.I. Coldwell Banker from the city\'s multiple-listing service. More significantly,
however, about 20% of residential properties sold below their asking price
this month, a trend virtually unheard of in the past few years. Most of those sold at 1% to 13% discounts. One property sold for 29% below its original asking price. It may take some time for these downward adjustments to show up in force in local sale-price data. But the signs
are there. The median price paid in February for new and existing homes and condos in San Francisco was $512,500, according to DataQuick. That is up 18% from a year earlier, but still down from the record $535,000 hit in
December.

Meanwhile, the number of homes sold in San Francisco last month --274 -- fell 31% from a year earlier, a sign, some suggest, that further
reductions in home prices are coming. \"Over the next two years, if we have a hard-landing recession, prices will drop 5% to 25% depending on the location,\" predicts Kenneth Rosen, chairman of the Fisher Center for Real
Estate and Urban Economics at the University of California, Berkeley. A supply-and-demand imbalance may be mitigating price declines. \"There has
been a tremendous housing shortage\" in the state, says Ted Gibson, chief economist at the California Department of Finance. California housing
officials estimate that about 220,000 new units of housing need to be produced each year to accommodate the state\'s projected population and
household growth, but during the past few years, only about two-thirds of that has been built.

Falling prices aren\'t limited to sales in San
Francisco -- rents also are coming down. During the first two months of this year,
rents have dropped between 1% and 7% depending on apartment size,according to Rent Tech Inc., a rental listing service in San Francisco. Loft
properties in the South of Market area are among the hardest hit. Ray Kaliski, co-owner of Lofts Unlimited Inc., a residential brokerage firm that specializes in such properties, estimates that lofts are renting for about
$2 to $3 a square foot, compared to $4 to $5 a square foot at its peak in the summer. Sale prices are rolling back to their levels of about two years ago -- when lofts in the area sold for $400 to $500 per square foot -- from the $500 to $600 per square foot highs of August, Mr. Kaliski says.
T.R.I. Coldwell Banker\'s Ms. Kirkham notes there is a silver lining to the
current situation. During the past two years, the frenzy in the market gave rise
to a few \"dangerous\" practices, such as buyers making purchases without
hiring their own inspectors. \"Hopefully, we\'ll get back to a healthier
situation,\" she says.