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What Will the Fed Do on Wednesday? And How This Affects San Francisco Real Estate

March 26, 2007

Today's New York Times has an interesting (and easy to read) article, entitled "Will the Fed Take Away the Chill?" on the current economy, affects of the subprime mortgage "situation" and possible reactions by the Federal Reserve on Wednesday. "SHARES of some subprime mortgage lenders have plummeted, while interest rates on low-quality debt have headed the opposite way. That suggests that investors are worried about economic conditions, and Federal Reserve policy makers may use their meeting this week to convey the same concern." Here's my layman's interpretation: According to the article, it is unlikely that interest rates will go down. BUT, and this is the important part, they do feel that the Fed will soften its language about the state of our economy. They have made strong statements about inflation rising recently and are likely to tone it down a notch. There are worries that the economy is not as strong as previously thought. If inflation is not a concern, interest rates will stay low. Interest rates low keeps the housing market afloat or buzzing, depending on your local market. Here in San Francisco, we experienced the housing boom during the dot-com bust and major local unemployment. The boom continued on through the tech recovery and improving employment in San Francisco and the Bay Area. All the while, interest rates were historically low. Maybe not 50-year low but 40 and 30-year lows is nothing to frown at! In general, bad or slowing economy = interest rate cut = boost to housing market and consumer spending. Contrary to what the Chronicle reports, real statistics demonstrate San Francisco real estate market has recovered from last Fall's slump and is, again, appreciating. Sellers are not selling in a buyer's market and buyers are buying in the typical SF fashion. Of course, verify all info with your Econ 101 professor as that's certainly not me! 🙂 Read the brief article HERE.

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