By Mike Southwick
The words “fiscal cliff” has become a household phrase as we march toward the conclusion of 2012 and the beginning of 2013. The reason that these words have even become such a frequent topic and permeated almost all news reports is that our economy is still considered very fragile.
The fiscal cliff in general is rooted in the decision by our political leaders to extend a number of tax cuts initially introduced during President George W. Bush’s first Presidential term, extended and enhanced during his second term and further extended during President Barack Obama’s first term in office. These tax cuts were designed to keep the economy from getting worse and to also try to boost investment in our country through increased business ventures and opportunities. The hope was that these types of tax cuts would help to increase jobs. The extension of these tax cuts in 2008 came with an automatic sunset clause built in and as such they will expire at the end of 2012. This will happen unless the Legislative and Executive Branches of government come to an agreement on how best to attack the deficit and keep the U.S. government from facing what some claim will be disastrous consequences.
Those decisions remain undecided as I pen this article and the outcome whether good or bad will be determined by either a compromised solution or a stale mate. These are tough and challenging days that await and I suppose we will all soon see just how far of a drop this “fiscal cliff” will actually bring. Some areas of our economy remain weak and that is evidenced by a high unemployment rate which continues to drain federal, state, and local financial resources in order to support those who remain unemployed.
There also seems to be a fair amount of unreported data related to under-employment as well as qualified information on those people who have just stopped looking for employment. If all of that data were to be totaled it is possible that our economy would seem a little more fragile than we think. It is this kind of information that a lot of politicians and even business people would probably prefer not to discuss openly because it is really the giant elephant in the room and such discussion can sometimes put a damper on moving us toward the robust economic recovery that we want.
There are signs of improved job reports and I personally think that our employment numbers will improve quite well in 2013 but it will require a lot of hard work, tough decisions, cooperation, and vision by not just our politicians, but also our business leaders, visionaries, and even ourselves, in order to bring real sustainable recovery to our nation.
The bright spot in the economy is housing and currently we have a shortage of homes to sell. I have personally seen competitive bidding for homes in all price points and in most all markets that I currently service. This activity is causing house prices to increase across the board in most all major markets. I believe that 2013 will begin a housing boom that should help to bring our stifled economy out of recession and help to spur an economic recovery that is so desperately needed.
There remain remnants of distressed properties (Short Sale, Bank Owned –REO, and Auction) throughout all markets, but the traditional equity sale is now the dominant leader in current home sales. This should continue into the New Year and hopefully will begin to create an interest among builders and developers to take risks and create more housing inventory. I believe that it will be the housing market that will make the landing from going over the fiscal cliff a little softer and less bruising. I guess we will just have to wait and see.
Mike Southwick is the managing broker at C21 Select Real Estate in Placerville, El Dorado Hills and Pollock Pines.