Skall + Glassman - August 18, 2022



There has been much discussion as to whether we are in a recession. We’ve had two quarters of negative growth, the yield curve has inverted with the 2-year treasury rate higher than the 10-yr treasury rate (a signal for the last 7 recessions), manufacturing orders have declined, and wage growth—a key factor of inflation—is rising.


Good news was announced on August 10th, when the Consumer Price Index (CPI*) came in at 8.5%, showing a larger slowdown in inflation than economists had been expecting. The immediate response by stock market investors was a rally.** This new data gives hope that the Fed will likely be able to slow down/reduce its future rate increases.


CPI is considered a lagging indicator, which may signal that inflation peaked in July. However, many believe that inflation is likely to be “sticky”. It may remain high for some time and may not get back to the Federal Reserve’s targeted level of 2% for a while.


Most economists surveyed by the Wall Street Journal at the end of July expect the economy to grow in Q3 and in 2022 in general (although at a lower rate). Economists allude to a deceleration (or soft landing) rather than a recession*** and say that the slowdown we are currently experiencing is needed to help rebalance the economy given the demand/supply imbalances for goods and services.



*What’s the difference between CPI AND CPE?

The CPI is released by the Bureau of Labor Statistics and the CPE is issued by the Bureau of Economic

Analysis. While both measure inflation based on a basket of goods, there are subtle differences between the indices. The CPI uses data from household surveys; the CPE uses data from the gross domestic product report and from suppliers. The Federal Reserve views the CPE as the primary inflation measure that they use to make monetary policy decisions. The CPE is considered a broader and timelier measure of consumer behavior than the CPI.


**Recent low for the S&P 500 index was 3667 as of 6-16-22. On 8-10-22 S&P 500 was 4210, on 8-16-22 S&P 500 is 4310 as of today’s writing.


***The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity spread across the economy for more than a few months. An official declaration will be made by NBER, but this usually occurs after months of extensive data has been reviewed. In other words, we won’t know for sure if we are in a recession until after the turning point has already occurred.




The housing market has cooled under rising interest rates, and high inflation has taken the steam out of business and consumer spending. In San Francisco, Twitter recently announced it was letting go of a large portion of its headquarters office space in SoMa, as have Etsy, Salesforce, Block and PayPal. It has certainly proven to be difficult to gauge office space for fast-growing tech companies!


Not all news is bad. Demand for luxury brands such as Hermes, Christian Dior, and Louis Vuitton Moet Hennessy (LVMH) are still showing increased sales. Hermes’ $10,000 Birkin bags showed increased sales of 23% in the first half of 2022 versus the same period in 2021. Spending by Americans and Europeans this summer has been significant, and many luxury brands have more than doubled their sales in America compared with pre-pandemic levels. U.S. tourists have headed to Europe after being cooped up at home, and are taking advantage of the Euro’s weakness relative to the U.S. Dollar- these currencies are trading close to par.


The luxury sales data, along with recent sales of very high-end homes in San Francisco and Marin, illustrate that the highest echelon clients may be immune to the economic challenges which others may be facing. In the Bay Area, the strongest growth in home values appear to be in the North Bay. It’s rumored that Lady Gaga just purchased a beautiful home on a prime street in Mill Valley for around $16MM.


Aside from the uber-high end, the housing market has slowed from its frothy highs. However, the good news for sellers is that housing prices remain historically high. “Sought after” homes (remodeled for today’s buyers, staged, and priced correctly) will still draw multiple competitive offers. Homes where Sellers insist upon aspirational pricing will likely endure a longer sales cycle, and lower sales price.


With the recent uptick in the stock market and falling gas prices, we are seeing buyers step up their house hunting activity after a sleepy July. With a less frenetic pace, buyers now have time to make more reasoned decisions. Because of higher mortgage rates, buyers likely have had to adjust their purchase price range. Luckily, mortgage rates have fallen recently (Wells Fargo recently posted a 4.5% jumbo rate with 5/8 point). Perhaps even more encouraging for buyers, offers with contingencies are now being accepted. Buyers may also find opportunity in the

market from over-zealous sellers who have allowed their properties to grow stale on the MLS. These properties may offer prime negotiating opportunities.


Real estate market changes are often uneven during a transition period. One home will sell in days at well over list price, while next door, another seller has to reduce their price to get an offer. Buyers become more discriminating, negative conditions previously ignored are noticed, more negotiation occurs, multiple offers and over bidding decline. Listings that are well prepared and priced right will have an increasing advantage. The high appreciation rates of the last 2 years will almost certainly start to decline (which is not the same thing as an imminent decline in prices). Overall, San Francisco and Marin County are behaving more and more like a “balanced market”.

Work with us

We are passionate about living and finding your unique dream home. Contact us for more details.