- The Washington Times - Friday, August 25, 2000

OK, what's going on? Up and down the business wires, it looks as if the party may be coming to an end. The headlines sound much like those of the early '90s:

• Bank of America to cut up to 10,000 jobs.

• First Union raises layoff estimates to 5,291.

• DaimlerChrysler's Freightliner to cut 3,745 jobs.

• Agilent to cut 450 jobs.

• Dow Corning to cut 600 to 800 jobs.

• NBCi lays off 170 in effort to cut costs.

• Pillsbury cuts 278 jobs in Minnesota, 740 worldwide.

As corporate economists put the numbers together for the not-too-distant future, they're seeing the interest-rate increases by Federal Reserve Chairman Alan Greenspan finally causing an economic slowdown. The bean counters are preparing for the smaller economy by eliminating jobs. In addition, the Internet bubble is bursting as many start-ups are becoming run-downs.

Iown.com, for instance, just announced a reduction of 150 jobs (nearly its whole work force), according to an Inman News Service report. Iown.com was one of the first on-line loan-origination firms to hit the Internet. Now, instead of doing loan origination, Iown.com is acting as a referral agent.

Reuters News Agency reported last week: "With evidence of U.S. economic moderation piling in, a subtle shift in sentiment is occurring with financial market signposts saying Federal Reserve rate tightening may be done even that the central bank's next move could be a cut. In the Treasury market, the two-year note a good barometer of future interest-rate perceptions dropped to 6.15 percent [last week], its lowest level in eight months and 0.35 percentage points below the federal funds overnight bank lending rate. This would normally point to lower rates to come, analysts said."

(Note: The Federal Reserve did not change interest rates on Tuesday, but remains vigilant against inflation. )

Meanwhile, we all know low interest rates are good for real estate but combine the low rates with a little belly-blow to consumer confidence, and demand for houses will drop as well. (For the Washington region, that would be a good thing because we find ourselves in a severe housing shortage).

On a more immediate platform, local companies are faring very well. PricewaterhouseCoopers reported in its MoneyTree Report that venture-capital firms poured $282 million into 21 Fairfax County-based technology firms in the second quarter of 2000. The Fairfax County Economic Development Authority reported on its Web site (www.eda.co.fairfax.va.us/index.htm) that when combined with deals reported in sources other than PricewaterhouseCoopers, the Fairfax County total soars to $338.825 million invested in 24 companies, an all-time record.

Northern Virginia is not the only jurisdiction looking at a healthy economic picture. The latest jobless rates for the region beat out national figures (except for the District). The U.S. Bureau of Labor Statistics shows the District's June jobless rate at 4.4 percent (down from 6.3 percent in May). Meanwhile, suburban Maryland's unemployment rate stood at 2.7 percent, with Northern Virginia at 1.6 percent. The national unemployment rate for the same period was 4.2 percent.

So what does all this mean if you want to buy or sell a house? In the short term, not a lot. We still lack enough houses for the buyers who would purchase them. Jobs are plentiful, as is income growth, so consumer confidence may stay put. Bring those interest rates down a bit, and we could see some more multiple contract offers, but we also would see a few more refinances for homeowners who missed out in the last low-interest-rate refinance boom.

If the economy cools, consumer confidence could take a dive, and fringe home buyers could scurry out of the market. That would leave more houses and better deals for the remaining buyers.

If interest rates start to drop, keep your eye on the bottom line. Even if your income doesn't grow, your buying power will increase by virtue of a lower interest rate.

The long-term interest-rate average at this writing stood at 7.71 percent for a 30-year fixed-rate loan. For every quarter-percent drop, a buyer making $50,000 a year gets a purchase-power increase of about $17 per month or roughly $4,000 more on the house's price tag.

Recession on the horizon? No, that looks more like a buyer's opportunity.

M. Anthony Carr has written about real estate issues for 11 years. Direct your questions and comments to 8411 Arlington Blvd., Fairfax, Va., 22031; or e-mail [email protected]

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