-- FEATURE-Some warn of latest U.S. bubble: real estate --
By Adam Tanner
SAN FRANCISCO, Feb 24 (Reuters) - On 10 occasions over the
past year, Deirdre Nurre has offered to pay more than the list
price in her intense search for a San Francisco area home. Yet
only in recent days has a seller accepted her bid.
By contrast, renters are finding landlords ready to slash
prices in what was once the country's hottest housing market, a
difference some economists say suggests a dangerously expensive
real estate market.
Nurre, 42, who works at the Environmental Protection
Agency, has seen the San Francisco property market at its most
frenzied, where crowds turn out during open-house viewing hours
and later bid up prices against each other.
"The first time it felt very dicey to be making a bid for
what then was $45,000 over the asking price. It felt really
risky. (But) very quickly you become inert to this
inevitability that your bid is not going to succeed," she
said.
As a modern-day Gold Rush made San Francisco as hot in the
1990s for the ambitious Internet generation as it was to
hippies in the 1960s, rental property prices shot up to new
heights.
Those looking for apartments brought brownies, bagels or
other goodies during packed showings to curry good favor with
would-be landlords. Some went as far as to butter up the owners
with tickets to Hawaii or other pricey gifts.
A popular saying went that anyone could get a job in San
Francisco and nearby Silicon Valley, but it was impossible to
find housing.
Then the tech boom went bust, and tens of thousands lost
their jobs as investors realized that the new Internet
companies could not, in fact, walk on water and defy
traditional business models. Dot-com millionaires started
selling or renting their upscale homes, lowering prices at the
top end of the market.
"We did have a bubble in the Bay Area and it popped," said
Leslie Appleton-Young, chief economist for the California
Association of Realtors group.
"The very high-end homes of three, four and eight
million-dollar homes, those prices came down, but the
entry-level prices are holding firm because there is more than
enough demand for the very limited supply."
FRENZIED BUYERS
The market for what brokers call starter homes remains
robust, with record low mortgage rates acting as a fuse for
continuing propulsion. The California Association of Realtors
says the median price of existing California homes continues to
rise. The median price statewide for a detached, existing,
single-family home in California in December rose 20 percent to
$338,110 from $281,330 a year earlier.
In the San Francisco area, the median price of homes was
more than half a million dollars, up more than 9 percent from a
year before. By contrast, the national median price of an
existing single-family home in December was $164,000, according
to the National Association of Realtors.
The buying atmosphere is sometimes so frenzied that caution
is sometimes thrown to the wind. Nurre recalled the time her
bid tied with that of another prospective buyer, but she and
her husband, Tim Ereneta, a museum administrator, still did not
get the house.
"We tied once but the other bidder waved the right to
inspect the property," she said. "It blew me away that someone
was willing to take that chance."
RENTS FALLING
Bay Area renters, on the other hand, can take their time
and often watch prices fall.
"A significant percentage of the people who lost their
jobs, rented," Realtors chief economist Appleton-Young said.
"You have had a huge increase in the vacancy rates in
apartments and a downward pressure on rents in the Bay Area and
Silicon Valley, Santa Clara, which is unusual. You are not
seeing that in other parts of the state."
Broker Sam Anagnostou said one of his friends rented a home
that was originally on the market for nearly $7,000 a month for
a little more than $3,000 in an upscale area of Silicon
Valley.
Few rentals see that dramatic a fall, although brokers say
rentals are routinely 10 percent or 20 percent cheaper than
what they were a year ago.
Demand for office space has also fallen dramatically.
The San Francisco Bay area ended 2002 with one-fifth of its
office space vacant, a near tenfold increase from the peak
during the Internet boom when vacancy rates were as low as 2
percent, a recent study found. Rent in Silicon Valley for
high-tech commercial real estate fell almost 30 percent.
Some analysts say because real estate is something physical
rather than paper such as stocks, it represents a stable
long-term investment. In the Bay Area, many homeowners repeat a
mantra that sale prices have never and will never go down.
But others say the falling rental prices indicate dark
clouds. Edward Leamer, director of the UCLA Anderson Forecast,
measures real estate values by comparing home prices to the
rents those homes could command. He says that sale prices are
out of proportion with rents and indicate real estate may be
overvalued nationally.
Higher interest rates or an economic recession is the straw
that could break the real estate camel's back, experts say.
"As the real estate market heats up because of low interest
rates, rental incomes generally go down," said Todd Thornton,
author of "Home Buying without the BS!" (Hall Street Press).
First-time buyer Nurre said she realizes she may be buying
at the market's peak, but she is willing to take that risk.
"I am strongly convinced that my salary, my earning power,
is not going to rise substantially beyond what it is," she
said. "But you keep seeing prices up, up, up. I feel like this
is a window that is closing and I had to get into that fast."
((Reporting by Adam Tanner; Editing by Maureen Bavdek. Reuters
Messaging: adam.tanner.reuters.com@reuters.net; e-mail
adam.tanner@reuters.com, 415-677-2541, fax 415-986-5147))
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24-Feb-2003 19:26:54 GMT
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