Economy and Real Estate in San Francisco Bay Area second Half of 2007

ECONOMY/REAL ESTATE 2007

2007 will be a crossroad year for both the economy and the real estate market.

As for the economy expect a slowing down:

•ü GDP at 3%.

•ü Inflation will be up at close to 3%.

•ü Bond yield will continue to rise to close to 5%.

•ü The stock market will be the "to own" asset.

•ü The FED will continue to hold rates and then by mid-year start to lower rates.

•ü Mortgages will continue to creep up and may reach 7% by year end.

The slowing of the economy is normal for the economy this far mature into a rebound after the recession of 2000-2001. We are four years into a bull stock market with increase from 2000 of 30%, the employment rate is down to 4.6% from the high 6.5, GDP is still at 3%, and productivity is slowing to the 1.5% range. ...All in all a good economy but a mature one!

As for the real estate market the FED has been the slowing the market down for the last year. Lenders are helping by tightening the underwriting standards and consumer who took our $ 600 billion dollars last year in re-sales, re-fis and home equity lines will only take out $200 billion this year. Also, as we move into 2007 we will see inventory grow, days on the market increase - all of this is good for the market to blow up as the stock market did in 2000. A market coming into balance, cooling down is just what this market needs after a 40% appreciation across the nation in the last 4 years over 80% in the S.F. Bay Area.

In the San Francisco Bay Area we will continue to see the first time multi-offer market, the move up and move around market and the high end market but sellers will have to get more aggressive about their pricing and they will have to be willing to do some negotiating at the table. Buyers will continue to be available but more cautious; some will be priced out of the market with rising interest rates and those that stay in the market will want concessions at the bargaining table.

One pocket of the market that will be very active will be the investor market - rental properties including apartments, office spaces and retail spaces. In this pocket of the market anything from $1-25 million dollars will be multi offer and will look like the single-family market of 2004. This market will be driven both by the consumer and the international buyers.

So with all being said 2007 will be new world in real estate-one that is cooling but that is a good thing. And remember it is always a good year in real estate sometimes for sellers sometimes for buyers but always for those who play with the market and not against it.