The Fiscal Cliff: A Negligible Impact on San Carlos Real Estate.

December 6, 2012

Cliff

If it Happens…

As we steam toward the end of 2012, talk about the impending Fiscal Cliff is dominating the headlines.  Aside from the serious amount of tax and spend issues that need to be resolved, it's a perfect venue to observe the shameful Republican and Democratic posturing that seems to happen whenever an issue needs to be resolved in Washington anymore.  (Whatever happened to working together?)

Although most experts seem to believe that some sort of agreement will be reached which would turn the Cliff into more of a Ledge, it's worth pondering what would happen to the San Carlos real estate market if no such agreement was reached.   While there will certainly some pain felt in the pocketbooks of both buyers and sellers next year, I'm going to stick my neck out now and predict that the effect of  the Fiscal Cliff  the San Carlos real estate market in 2013 will be negligible.  Here's why…

It's All About Jobs.

When you look back at the boom and bust cycles in the past few decades in San Carlos real estate, you'll see that these periods of change mirrored the temperament of the job market.   When local companies were hiring, the real estate market thrived.  Conversely, when the job market hit the muck, the housing market followed suit.   Pretty basic Econ 101 for any community.

But the micro-economic force that powers the Peninsula economy is largely based on high-technology, biotech, and finance — which pretty much spans from San Francisco through Silicon Valley.    And those three industries have been on a hiring binge since mid-2011.   Most of my clients work in one of these 3 industries, and they tell me without exception that they're either hiring employees, or they're being recruited by companies that are (or both.)   And there's no sign of that abating in 2013.

The need to house a growing workforce in a geographical area that has finite housing will outweigh the negative effects of the Fiscal Cliff.    There…that's my prediction.

It Won't Be Without Pain.

This isn't to say that the worst-case scenario won't be painful for real estate market to endure.    A high percentage of the people who qualify to purchase homes on the Peninsula are part of that 2% of Americans who will be hit with higher income taxes.     And it's evident that the stock market takes a beating whenever there's any bad news on this topic, so some potential buyers will have their purchasing power clipped to the point that they may not be able to buy.    There's even talk about reducing or eliminating the mortgage interest deduction (MID).  That would really suck for homeowners, but will it deter many people from purchasing a home?  I doubt it — with monthly rent running nearly as much as a mortgage in this market, it still makes more sense to buy.

It was only a year ago when we were pondering another imminent event that certainly seemed as if it had the potential to significantly alter the landscape of the San Carlos real estate market:  The Facebook IPO.  Speculation was all over the map about the effect of so many newly minted millionaires suddenly unleashed on a recovering economy — some people feared that the sudden injection of wealth would drive home prices out of sight for many, while others speculated that nothing would really happen at all.

As we now know, the latter turned out to be true (at least in San Carlos).

Now, we have another ominous situation looming when the calendar ticks over to 2013.  And while I can't speak for the rest of the country, I'm pretty sure we'll survive this one too.

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