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Which way is the wind blowing?
November 8, 2007 | posted by: Andrew C Maleski

There is a lot of confusion these days about the direction of our economy. Every day you can find conflicting news reports and numerous articles by financial gurus pointing in the opposite directions.

Some of them claim that the national economy is perfectly fine and that the housing and mortgage industry woes are just a minor bump in an otherwise perfect business climate. Others see a gloomy future and are predicting a serious economical downturn. They point to a financial crisis where major banks report huge losses in the mortgage backed securities markets.

The stock markets took a serious dive this week after oil prices rose close to $100.00 p/barrel and the dollar fell to all-time low against the euro. These events make us nervous -- and poorer -- especially when we travel oversees.

On a positive note, last week the central bank cut its key federal funds rate from 4.75% to 4.5%. This rate is what banks charge each other for overnight loans and it affects rates on everything from auto and business loans to credit cards. The change in short term interest rates does not necessarily mean that long terms rates will be coming down any further.

On the local front, we are just recovering from the devastating wild fires and already new clouds are showing up on the horizon. The Hollywood writers' strike started on Monday, and if it lasts, it may deliver another blow to an already sagging real estate market.

The Los Angeles Times reported this week that the local home prices in Los Angeles and Orange counties fell 5.7% compared to a year ago. San Diego decline was even steeper with an 8.3% year over year decline.

In our area, which is relatively stable, the price declines were closer to 3% for the same period. However, the inventory of unsold properties keeps growing. At the end of October that inventory in the Silver Lake/Echo Park area grew to an 11 month supply. In the Los Feliz area it held steady with an 8 month supply.

Foreclosures are still rare in our area but are now slowly spreading into more affluent neighborhoods.

The tougher it gets, the more excited I am about the prospects of buying more real estate at reasonable prices. A slower market always creates opportunities to buy real estate at discount prices. As Warren Buffet, the world's most successful investor, says "Be greedy when others are fearful and fearful when others are greedy."

As for the direction of the wind, my guess is as good as yours.

Copyright Andrew C Maleski 2007. All rights reserved.

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