The discussion quickly turned to what people are thinking, and more importantly hearing, about what is going on with the economy. What is the reality? Well, since our last posting, stock markets on an international level have suffered. Housing prices are down nationally, unemployment is higher than it has been in years, and people as well as businesses are starting to make cuts in their spending. This is a bad equation.
The question that nobody can answer with complete accuracy is what will happen going forward. I think I have quoted my father in the past saying, "Ask 6 economists and get 10 different predictions" or something to that effect. Some say if we do in fact enter a recession it will be fairly mild and only span two to three quarters. Others are much more pessimistic and think it will be severe lasting at least four quarters.
One of the major fears among chief economists is that housing prices will continue to fall, and perhaps accelerate. Again, these opinions vary, and are predicted on the national level. One of the major problems is saturation due to new developments. Developers in some areas are slashing prices up to 50% in order to offer incentives to buy. San Francisco is clearly not in this predicament due to our finite number of single family homes.
Another concern is that foreign investors will begin pulling their money out of the US economy. Stocks would continue to fall thus adding to the fear that will in turn cut spending. Lastly, banks may be unwilling, or unable, to make larger loans to businesses or individuals. Without borrowing, there will be no spending.
What is being done to help the situation?
Fed Cuts Rates 3/4 of a Percent
While many are saying this is "too little too late" this is at least a start, and we may see another rate cut next week. It was an emergency meeting called one week before their scheduled date, and the cut was the largest in over a quarter of a century. These rates will apply to adjustable rate mortgages, auto loans, and credit card interest rates.
Stimulus Plan
Again, they say it won't be enough, but it is action in the form of a tax rebate check. Individuals would receive $600, and working couples would receive $1200 plus $300 per child according to this agreement. The idea is that money in our pockets will be pumped right back into the economy. The checks would be given out between May and July, and the total cost will be about $100 billion. Also included in this plan is $50 billion in business tax cuts.
San Francisco home buyers will receive great benefit from a rise in limits on Federal Housing Administration (FHA) loans. This plan raises the limit to $725,000 in high cost areas. The cap is currently set at $417,000, excluding most San Francisco purchases. This is huge for San Francisco home buyers as the difference in rates from a jumbo to a conforming loan have been up to 1% since the credit crisis. This difference in rates was due to the fact that jumbo loans had no guaranteed buyers on the secondary market making them more of a risk to the lenders.
The buzz in the office meeting was the same that we have been reporting. Buyers are out there and ready to buy. Many are looking but cautious, still "waiting to see what will happen". Most realize that 2008 will be a good year to buy. There is still typical San Francisco frenzy on some properties.
This two bedroom house in Noe Valley was only on the market for 12 days before receiving 10 offers. It was cute, not spectacular. Simply the only thing around in its price range. Remember that, sellers!
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