Brexit: Something is Rotten in Denmark

brexit

Great Insight from Pacific Union’s Chief Economist, Selma Happ

Executive Summary:

  • The United Kingdom’s unexpected vote to leave the European Union, otherwise known as “Brexit,” was not accounted for in global financial markets prior to the vote. Thus, stock market volatility is sorting out the anticipated effects going forward.
  • While the financial market volatility will persist, the direct impact on the U.S. is minimal.
  • U.S. economic fundamentals remain strong, as they are based on domestic activity. Indirect impacts may actually bode well for U.S. housing markets, as investors seek safe, stable investments.
  • However, more volatility may be in store in the weeks to come.

To say that global financial markets were not pricing in Brexit prior to the vote is an understatement. Financial markets have gone haywire overnight, with many recalling the sell-off following the Lehman Brothers collapse in 2008. While volatility will stay with us for some time, the current situation is nothing like the 2008 financial crisis. And though no market was spared again, Europe’s fragile markets suffered from a severe lashing and will likely to continue on the rollercoaster ride.

Nevertheless, the Brexit vote still does not mean that the U.K. will leave soon; the referendum is not legally binding, and only Parliament can pass the legislation to leave the EU. Even if this happens, it would take at least two years for the EU and the U.K. to renegotiate their bilateral agreements. However, since no one yet really understands the full implications of Brexit, a period of volatility and much uncertainty is likely to persist.

Who Wins and Who Loses?

Unfortunately, it is easier to surmise Brexit’s direct effects than its indirect effects. In principle, the exit decision should have little direct impact on the U.S. or global economies. The U.K. economy accounts for only 4 percent of global gross domestic product. Also, U.S. exports to the U.K. comprise only 0.4 percent of our GDP, while the U.S. receives just 3 percent of its imports from the U.K. Additionally, our country’s bank exposure to U.K assets represents only 3 percent — thus a potential U.K. recession would have a limited impact on U.S. financial systems.

Among all parties impacted, the outlook for the U.K. is the haziest, followed by the uncertainty that will shadow over the EU. And while the direct impact on the remaining 27 EU countries is somewhat limited, the indirect effects cannot be fully foreseen at this point. The volatility and debate over what the next steps should be will not bode well for confidence or economic growth, and it may lead to further loosening of monetary policy.

Indirect Effects on the U.S. Could Help Our Housing Markets

Brexit’s indirect effects on the U.S., however, may not be so gloomy. First, the Federal Reserve’s decision to raise interest rates will most likely be further delayed due to this development. Also, with global financial uncertainty seemingly everlasting, U.S. Treasuries are continuing to look very attractive and will probably woo many investors. Both factors are going to keep interest rates low — particularly mortgage interest rates.

Also, U.S. economic fundamentals are essentially unchanged, and the country should continue to post solid job and wage growth. U.S. housing markets may further benefit from global uncertainty, as they are still perceived as safe, relatively stable, and to some extent underpriced, especially when compared to London’s exorbitant real estate market.

Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.

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Top 3 Tuesday: Best Dive Bars in Marin

Summer is here! Stay cool and enjoy a drink at one of these local watering holes.

1. Smitty’s Bar, Sausalito

smittys

2. Silver Peso, Larkspur

silver peso

3. 2am Club, Mill Valley

2am

 

Photos

http://www.yelp.com/biz_photos/smittys-bar-sausalito

http://www.yelp.com/biz_photos/silver-peso-bar-larkspur

http://foodio54.com/restaurant/Mill-Valley-CA/fdc06/The-2AM-Club

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Economic Straight Talk: A Tale of Two Economies: The U.S. and California

Real Estate Economic Analysis from leading expert  and Pacific Union Economist Selma Happ

house on money

This year has certainly not been without its challenges. Since January, news has kept pundits and the general public going back and forth on the state of the economy. This week’s news is no exception in that regard.

Wednesday’s Federal Reserve announcement to hold interest rates steady was highly anticipated. After all, the latest U.S. jobs report came as a shock to even the most pessimistic of observers. However, the perspective looming in the most recent statement was somewhat new and sheds light on how the U.S. government sees the future path of the economy — and what it expects to do through the rest of the year.

Reading between the lines suggests that the Fed won’t do anything. While many Federal Open Market Committee members anticipate at least one interest-rate hike by the end of year, the uncertainties raised in Federal Reserve Board Chair Janet Yellen’s speech won’t be resolved any time soon, including a lack of inflation, a lack of productivity, slowing job growth, international economic developments, and the upcoming vote on Britain potentially exiting the European Union (otherwise known as Brexit). And to top it off, there is the U.S. presidential election in November.

Nevertheless, it is important to point out that some of these uncertainties have become notoriously complex to measure, which is making the Fed’s job increasingly difficult. Many of the economic measures used today, such as inflation and productivity, rely on assumptions that were developed well before the technology era — when consumer baskets were weighted differently. Even a recent article in The Economist calls into question the usability of gross domestic product as a measure of economic prosperity.

Aside from inflation and productivity, consumers currently feel pretty good. They appear to be spending increasingly more on online purchases and dining out. And despite some speculations about slowing consumer spending, the last retail-sales report suggests that it has not weakened but that households have changed where and how they spend their money.

Also, businesses are feeling better. A survey of CEOs at the largest U.S. firms suggests that businesses plan to step up capital expenditures this year, which is a welcome turnaround in investment. But just to point out how confusing the news headlines can be, these are two that appeared in The Wall Street Journal earlier this week — both referring to the same survey:

CEOs Turn More Bullish About Business Investment: A Business Roundtable survey shows improving outlook but muted 2016 growth projection
Weak Business Investment Weighs on Policy Makers: CEOs are pessimistic but many plan to increase capital spending during the rest of the year
Take those headlines how you will, but there is still a plenty of optimism and fuel to keep the American economic engine firing for some time. And even if the growth does not appear staggering, there are no indications of immediate risks for the U.S. economy. There is no major buildup in asset prices, personal debt ratios are low, and price-to-earnings ratios for technology companies are one-fifth of what they were in 2000.

Also, the most recent economic data for California suggests that the state is doing better than most other global economies. On its own, The Golden State’s output ranks it as the sixth largest economy in the world, once again surpassing France and Brazil. California’s exceptional growth of 4.1 percent in 2015 exceeded the U.S. growth rate of 2.1 percent and France’s 1.1 percent. Last year, California created the most jobs of any state, including Florida and Texas collectively, which are the second- and third-most-populous states.

California, along with the other West Coast states, benefited from growth of information-technology and knowledge-based industries in general. Information and professional, scientific, and technical-services jobs were the major drivers of growth in all states that ranked as the highest performers in the last year and were the major contributors to the overall nation’s output growth.

However, the future is a little less clear. The next national jobs report, which comes out in early July, will be telling. Also, The California Employment Development Department released May’s job numbers this morning, showing an increase of 15,200 jobs in May. This number is consistent with the low national numbers released earlier in the month and will likely be revised upward. April’s job gains were revised by over 10,000 to show 70,000 jobs added. Over the last 12 months, California added jobs at a rate of 2.8 percent compared with 1.7 percent nationwide.

Certainly, adding jobs through the first half of the year shows that the Bay Area can expect slower growth than we saw last year — that is the nature of economic cycles.

As we approach full employment, which is already the case in the Bay Area, it becomes harder to see strong year-over-year job-growth numbers moving forward. That doesn’t mean we’re nearing another recession, but only that we are reaching a plateau in the current economic cycle.

Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.

SOURCE: http://blog.pacificunion.com/a-tale-of-two-economies-the-u-s-and-california/

 

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Top 3 Tuesday: Best Pizza in Marin

1. Pizzeria Picco, Larkspur

picco pizza
2. Bar Bocce, Sausalito

bar bocce
3. Tony Tutto, Mill Valley

tony tutto

 

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Pacific Union’s May 2016 Real Estate Update

may forecastAt $1.25 million, the median sales price in Marin County reached a one-year high in May. Homes sold in an average of 34 days, the quickest pace of sales in a year.

The MSI increased slightly from April to 1.6, and buyers paid just a hair less than original prices: 99.7 percent.

Defining Marin County: Our real estate markets in Marin County include the cities of Belvedere, Corte Madera, Fairfax, Greenbrae, Kentfield, Larkspur, Mill Valley, Novato, Ross, San Anselmo, San Rafael, Sausalito, and Tiburon. Sales data in the adjoining chart includes single-family homes in these communities.

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Economic Straight Talk: The Impact of Market and Economic Volatility on Bay Area Luxury Home Sales

Real Estate Economic Analysis from leading expert  and Pacific Union Economist Selma Happ

general economic straight talk

Executive Summary:

  • The luxury housing market has seen a slowdown this spring compared with last spring.
    Silicon Valley was the only Bay Area region with more luxury home sales this spring than last.
  • Compared with April and May of 2015, luxury homes are generally taking longer to sell in San Francisco and Silicon Valley. However, more homes are selling above asking price in San Francisco, while fewer in Silicon Valley are fetching premiums.
    The relatively more affordable East Bay continues to see strong trends in the luxury market.
  • The North Bay’s luxury market experienced a notable slowdown.
    Supply conditions suggest that further softening is possible, but this is more likely in North Bay than in the East Bay. San Francisco and Silicon Valley should remain solid.
  • After 24 months of heated trends, the luxury markets appear to be normalizing.

It’s the peak spring buying season, and a lot has happened with the Bay Area’s economy and housing market. A couple of months ago, we noted a possibility of slower activity in the luxury housing market if stock-market volatility persisted and venture-capital activity remained subdued. Although our local economy is still on strong footing and adding proportionally more jobs than any other part of the country, the Bay Area’s housing markets have seen some cooling and normalization.

Normalization is also evident among luxury home sales. For the purposes of this analysis, luxury homes are defined as those priced at $3 million or higher in San Francisco, Marin County, and Silicon Valley, the latter of which encompasses San Mateo and Santa Clara counties. In the East Bay — Alameda and Contra Costa counties — and Sonoma and Napa counties, luxury homes are defined as those priced at $1.5 million or higher.

The analysis below offers an in-depth look at housing market dynamics between April and May of this year and April and May of 2015. Generally, sales of luxury homes comprise about 3 percent of all transactions in the region, but in Silicon Valley, Marin County, and San Francisco, that share is closer to 10 percent. Silicon Valley was the only local region with more luxury sales this spring than last, and it is also the region where the decline in luxury home sales was most anticipated given the market volatility and venture-capital slowdown.

The share of luxury homes sales increased from last spring by 2 percentage points in Silicon Valley, and sales of luxury homes in total were 7 percent higher than last spring. This is of course partially driven by marked home price appreciation over the last year. Figure 1 summarizes the changes in sales activity for luxury homes across local regions. Two markets that suggest some concern in the luxury segment are San Francisco and Marin County, where sales fell by about 24 percent. On the other hand, while the East Bay had a relatively smaller decrease in luxury sales, Napa County offset most of Sonoma County’s decline. Taken together, the Bay Area has seen some decline in sales of luxury homes, but not consistently across the region and not in closely watched Silicon Valley.

impact 1

While there were generally fewer luxury sales, there is also some evidence that the $3-million-plus luxury market is taking a breather. Today, it takes longer to sell a luxury home than it did a year ago, at least in Silicon Valley and San Francisco, which dominate the Bay Area’s luxury market (see Figure 2).

Marin County had an interesting anomaly in 2015, where a few very high-end homes took a notable length of time to sell. However, even with those transactions excluded, 2015 was relatively slower in terms of the number of days it took to sell a luxury home in Marin. For example, 12 homes took longer than 200 days to sell in 2015 while none took that longer than 112 days in 2016. Similarly, the luxury markets in the East Bay and Napa and Sonoma counties saw luxury homes selling much faster this spring. The East Bay in particular benefited from relatively more affordable stock and general movement of buyer activity toward the region.

impact 2

While time on market was more consistent across price points, all regions in the North Bay — including Sonoma, Napa, and Marin counties — generally saw more price reductions from the original sales price to final selling price. On average, North Bay price reductions ranged from 2 percent in Marin to 6 percent in Napa. San Francisco, the East Bay, and Silicon Valley continued seeing final sales price closing higher than the original listing price. In San Francisco, more homes sold at a premium this spring than last. Silicon Valley, in fact, saw a notable drop in homes selling at a premium, from 60 percent of sales last spring to 47 percent now.

But the premium paid on homes selling over asking price is smaller than it was last spring, falling from 12 percent to 10 percent.  In San Francisco, the 14 percent premium paid last spring dropped to 11 percent this spring.

impact 3

Where Do We Go From Here?

Moving forward, supply indicators suggest we may continue to see some softness in the luxury market. Figure 4 shows the months’ supply of luxury inventory for May of this year, 2015, and 2014. Except in Napa, which has the fewest luxury sales in the Bay Area and where inventory tends to be higher, most other regions have seen a surge in supply. In San Francisco, the months’ supply jumped twofold from about two months to almost five months. Marin and Silicon Valley also saw higher supply when compared with last May. Similar conditions are evident in Sonoma County and the East Bay, where the months’ supply this year is higher than in the previous two years. In the East Bay, Alameda County had the lowest levels luxury home supply.

impact 5

Lastly, Figure 5 illustrates the absorption of luxury listings that were under contract at the end of May. In relatively more affordable regions, the absorption rate is highest in the East Bay — an average of 42 percent. On the higher spectrum of luxury homes, San Francisco had the largest absorption rate at 36 percent. Again it appears that Sonoma, Napa, and Marin counties are generally experiencing slower absorption of luxury homes than more urban regions like San Francisco and the East Bay. Silicon Valley absorbed listings at about a 30 percent rate.

impact 6

All in all, current supply trends highlight the unique segmentations of the respective markets. In San Francisco and neighboring communities with accessibility to jobs and urban amenities, demand for luxury homes remains solid. Even in Silicon Valley, where rampant fears of a slowdown caused some buyers to pause, luxury housing market activity shows vitality and a continuation of last year’s strong sales. Sonoma and Napa counties  are seeing higher buyer awareness and diminished frenzy from last spring as they are primarily second-homebuyer and retiree markets.  Marin County has also seen a cooling in demand and more cautious buyers.

All the trends highlighted above are in fact consistent with the previously anticipated normalization of Bay Area housing markets, which have been surprisingly heated for almost two years now. Still, we are only in the middle of the 2016 homebuying season, and conditions may change depending on the strength of the job market and domestic and international economic conditions. We will closely monitor the Bay Area’s luxury housing markets and provide an update in 90 days.

Selma Hepp is Pacific Union’s Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors and economist, and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.

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Top 3 Tuesday: Donut Shops in Marin

  1. Donut Alley, Larkspur

donut alley
2. Johnny Doughnuts, San Rafael

johnny doughnut
3. Golden Cream Donut, San Rafael

golden creme donut

 

Photos:

http://www.donutalley.com/da-map.html

http://www.bunrab.com/dailyfeed/2014November/dailyfeed_november-14_p1.html

http://www.citysearch.com/profile/1053866/novato_ca/golden_cream_donuts.html

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Top 3 Tuesday: Ice Cream Shops in Marin

Nothing says summer like a big bowl of ice cream. These sweet spots are perfect for getting a scoop on a hot day.

1. Fairfax Scoop, Fairfax

fairfax scoop

2. Silbermann’s, San Rafael

silbermans

3. Three Twins, Larkspur

three twins

 

Photos:

http://www.bunrab.com/yummychow/Reviews/SFReviewsFrameset.html?FairfaxscoopReview.html

http://www.yelp.com/biz_photos/silbermanns-ice-cream-san-rafael?select=g_9WlzXq1G6vDW2IWWXVxw

https://ricoaroma.wordpress.com/

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The Golden Gate Bridge Opened 79 Years Ago Today

ggb
BY BROCK KEELING MAY 27, 2016

Today marks the 79th anniversary of the city’s most iconic structure, the Golden Gate Bridge, the world’s most photographed bridge. On May 27, 1937, approximately 200,000 people crossed the bridge in honor of its opening, paying a sum of $0.25 to cross.

Structural engineer Joseph Strauss was the mind behind the design, coming up with plans for the span connecting San Francisco with Marin. He is honored with a statue at the start of the southern portion of the bridge. Charles Alton Ellis, however, is widely credited for coming up with the Golden Gate Bridge’s structural design.

Some other fun facts about the bridge:

  • It cost $35 million, finished early, and came in under budget
  • Up until 1964, it was the longest suspension bridge main span in the world until the opening of New York’s Verrazano–Narrows Bridge
  • Horrifying to think, but the U.S. Navy tried to get the bridge painted black with yellow stripes out of concern that ships would hit the bridge
  • From 1937-1970, pedestrians had to pay to cross
  • The color of the bridge is International Orange, a hue also once used by NASA astronauts
  • Opening day was studded with flyovers from small airplanes, something we cannot imagine happening today
  • The bridge has played host to many protests, with advocated climbing the cables to protest everything from the 2008 Beijing Olympics to the logging of redwood trees
  • The Southern Pacific Railroad company protested the bridge’s construction for fear it would ruin their successful ferry business
  • In its review of the bridge, the Chronicle referred to it as “a thirty-five million dollar steel harp”
  • High winds have thrice closed the bridge, per the Chronicle, “in Dec. 1, 1951 (69 mph), once on Dec. 23, 1982 (70 mph) and Dec. 3, 1983 (75 mph).”
  • During construction, a net was placed under the bridge, which saved the lives of 19 men who became known as the “Halfway-to-Hell Club.”
  • It is always being painted. Always.

Source:

http://sf.curbed.com/2016/5/27/11797888/golden-gate-bridge-birthday

 

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Pacific Union Monthly Economic Report: April 2016

market conditions 1 - 4.2016

market conditions 2 - 4.2016

market conditions 3 - 4.2016

market conditions 4 - 4.2016

market conditions 5 - 4.2016

market conditions 6 - 4.2016

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