Who is 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.

So, my take on the marketplace psychology right now is: maximum fear coupled with maximum confusion. There is no clarity about what the future will hold. Ergo, most people are doing nothing!

Ok, that’s fine, but that gets you nowhere, and Mr. Opportunity is knocking.

Allow me to share some insights I gleaned from a Cushman & Wakefield (a commercial brokerage firm) breakfast event I attended last week.  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:

(*Rosen is the chairman of the real estate market research firm Rosen Consulting Group, and Chairman of Rosen Real Estate Securities. He is 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.)

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

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

This sort of made me feel warm and fuzzy. I began to believe that that there is only a 95% chance that we will have a depression. Those are good odds. As my motto goes, I don’t know what I don’t know, but I do know that Ken Rosen is a lot smarter than I am, 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.

Buying

It takes guts to buy in this market, even though Mr. Opportunity is knocking. There are still multiple-offer sales, but they are few and far between. Most sellers 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’s also necessary to be in sync with a good agent who is focused on the client’s needs and not the commission.

The opportunities vary by neighborhood, price point and type. 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 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, but in Cole Valley, there are only three condominiums of 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 – and 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 construction 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.

Selling

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 here is that buyers 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 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 a lack of clarity. The lack of clarity translates into fewer transactions because people just don’t know the value of real estate now (they thought they did in years past. Therefore, they are more comfortable with waiting. The opportunity for the seller then is to take responsibility for the marketing and sales process, making sure that his or her agent is educating the few 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 that answer?

Summary

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 US city. Tourism, a high-quality workforce, venture funding and research universities drive the 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. Fear of making a mistake can be mitigated through becoming educated about the current market. Sellers can sell, but they and their team need to be at the top of their game.

Let’s hope odds-maker Ken Rosen is right.