News & Research Archive

Pulse Of The Market (Pulse 64 - Knock Knock - Who's There?)

Nov 12, 2008

Mr. Opportunity - a short, fat man with a long beard and a bald head. When he knocks, if you don't grab him by the beard, he will turn and be gone in a second.

My take on the marketplace psychology – maximum fear, coupled with maximum confusion. There is no clarity as to what the future will hold. The fact that we never know the future doesn't stop us from wanting a sense of control. But instead, there are waves of emotion dominating the airwaves. Ergo, most people do nothing!

Ok, that's fine, but that gets you nowhere, and Mr. Opportunity is knocking. While we never know the future, some people make their business to have a keener eye and see a little beyond the horizon.

Allow me to share some insights I gleaned from a Cushman & Wakefield (a commercial brokerage firm) breakfast event I attended about 10 days ago. The keynote speaker was Ken Rosen*, who has been a vocal bear on the housing market for several years. His handicapping on the outcome of the current financial crisis is this:

Deep recession – 60%
Mild recession - 35%
Depression - 5%

He offered a couple of data points that I found interesting. He suggested what the stock market averages would look like in the following two cases:

  Deep Recession Moderate Recession
S & P 950 1400
NASDAQ 1700 2300

The S & P and the NASDAQ hit lows (so far) on October 27th at 848 and 1505 respectively - both lower than Ken Rosen's predicted lows for a deep recession.

I would be lying if I didn't admit this sort of made me feel warm and fuzzy. After all, if Ken Rosen is even close, it's a good bet we have a 95% chance of avoiding a depression. Those are good odds. I don't know what I don't know, but I do know that Ken Rosen knows this territory better than I, so I think I will go with his odds and get on with my life, though a deep recession will not be fun for anyone.


Some people say it takes guts to buy in this market, even though Mr. Opportunity is certainly knocking. There are still multiple-offer situations, but they are few and far between. Most sellers today have a compelling reason to sell or are in distress, i.e. very accommodating, so attractive deals are possible and probable if the buyer is educated about the market, property and location. It is also necessary to be in sync with a good agent, one who is focused on the client's needs and not the commission.

The opportunities vary as to the neighborhood, price point, and type. Consider the facts and also what they might mean. There is very little single-family inventory under $3 million in District 7 (Pacific and Presidio Heights, Cow Hollow, The Marina) while Noe Valley has 18 single-family homes available from $1.5 - $3.0 million. However, only 13 one and two-bedroom condominiums are available from $750,000 - $1.5 million. There are plenty of condominiums to choose from and potentially attractive deals in the south of Market Street (SOMA) neighborhoods though Cole Valley has only three condominiums available in any configuration and at any price point.

To assess whether something is a good opportunity buyers need to appreciate three key elements. First, the fundamentals of San Francisco residential real estate are among the best in the country (see recent Pulses). Second, virtually no new single-family homes will be built in the City – ever. No more condominiums will be built for the next several years because it is going to take a long time for construction financing to bounce back, not to mention the drawn out City approval/permitting process. Third, notwithstanding the recent decline in commodity prices, the replacement cost of condominiums is higher now than the current sale prices of new condominium product; in other words prices will need to rise before developers can even start to think about building again. And that just begins another lengthy process before those units hit the market.


It doesn't take a genius to understand that there are fewer selling (than buying) opportunities in this market, but there are indeed opportunities. The opportunity is that sellers can compete more effectively against the competition. Despite the current situation, there are buyers as there always will be. And no matter what is happening in the market, a seller needs to be educated in the economics of San Francisco and the nuances of the marketplace.

The seller of a single-family home, condominium, or multi-unit building, needs to be "best of class" in terms of presentation, accessibility, disclosure, and price. Deals are being done, although there are fewer happening this year than last year. As noted at the beginning of this Pulse, there is a lot of fear and confusion plus lack of clarity. The lack of clarity translates into fewer transactions because people just don’t know the values of real estate now (they thought they did in years past). Therefore, they are more comfortable with waiting. The opportunity, if not a new requirement, for the seller then is to take responsibility for the marketing and sales process, making sure that his or her agent is educating the fewer available buyers who are actively searching and treating them with kid gloves. The ultimate question is – would you, Mr. or Ms. Seller, buy this property at this price at this time? If not, why not, and what do you need to do to change the answer?


San Francisco is small, surrounded by water on three sides and has very little land available for development. Two-thirds of the housing stock is in the rental pool, the obverse of every other major U.S. city. Tourism, a high-quality workforce, venture funding, and research universities drive the local economy. Housing is a precious commodity, but it is a commodity, and its value fluctuates. Buyers, depending on what they are looking for, are in the driver’s seat; but they need to be confident enough to drive. Fear of making a mistake can be mitigated through becoming educated about the market. Sellers can sell, but they and their team need to be at the top of their game.

I can't say whether Ken Rosen is right. But I can take a cue from him and move bravely forward.

*Chairman, Rosen Consulting Group, a real estate market research firm, and Chairman of Rosen Real Estate Securities. Also Chairman of the Fisher Center for Real Estate and Urban Economics and Professor Emeritus at the Haas School of Business at the University of California, Berkeley.

Written by: Malcolm E.A. Kaufman


Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.

Malcolm E.A. Kaufman is Top Producer at McGuire Partner. He refers you to his website,, where you can see recent issues of Pulse of the Market© and learn more about him. He invites your comments, suggestions, and questions.

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