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The Problems are the Path

The Problems are the Path: "What a Revolting Development"

Looking back in past messages you will find a comment I made on the course of long rates, 10-year plus US Treasury Bond Rates.  In particular the 10-year bond is the bond that makes all mortgages for single family homes.  The yield curve will correct as the FED lowers interest rates on all bonds from 1-year US Treasuries back to the 30-day Treasuries.  The FED rates will come down and therefore so will the yields.  The change will be the long term rates of US TReasury Bonds will go up! Here is the present outlook.  The outlook is based upon the Swap Market that is used to trade one set of short term bonds for another set.  A bit like rolling maturities.  All the Swaps do is indicate the market forecast of FED action in where rates will be after the next FED meeting. Date of FED Mtg.          Rate Forecast.           % Certainty December 18, 2024......4.42%........................86% January 19, 2025.........4.20%........................89.8% March 19, 2025............3.956%............
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The Problems are the Path: FED Cuts Rates and Property Improvements

If one can get their faces off the Election and look at how interest rates will affect Real Estate, there maybe a chance Buyers can manage their decision to buy a home or invest in real estate. The frustrating event of a rate cut of 50 basis points, or one half of one percent has created, most buyers and investors with, a HUH?  Moment.  The mortgage rates dropped to 6.09% on the day of the interest rate cut by the FED.  On the investor side, interest rates for commercial properties dropped, but the down payments remained at 35%.  No big benefit there.  The Yield Curve corrected further with the 2-year Treasury Bonds dropping below the 10-Year Treasury Bonds.  A major improvement with the first time in years that the interest rate market was not forecasting a recession.  That is really good news! What happened after that was something I expected, the most market commentaries did not.  The Ten Year US Treasury Bond yield increased!.  This is normal for a growing economy, in our case a Go
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The Problems are the Path: The FED Picks Up The Pace. What does the FED See?

The FED followed the analysts forecasts on a rate cut. One member dissented.  The Trump appointee felt that the inflation figures are not in line with the FED Model.  We will see. The Yield Curve is coming into line as the 30-year, 10-Year and 2 -year are now in line to indicate no Recession.  The 1-year is quickly following to a few basis points above the 2-year.  So all is well in the Government Market. The follow up by the FED looks to be another cut shortly.  Consumer Confidence is falling.  The Census forecast of growth next year is down.  The commercial market is under pressure as owners from the multi billion and multi million properties are taking a toll on the smaller investors as the inventory of smaller investor properties are flooding the Commercial Listing Markets. UNEMPLOYMENT?  According to the Thursday September 26, 2024 Wall Street Journal the unemployment numbers are forecasting recession.  More than enough reason for the Zillow numbers to forecast a decline in home p
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The Problems are the Path: The FED and the Slow Rabbit

The first knowledge I had with the concept of the Slow Rabbit was when I attended the Wharton School of Business Management Program for Investment Management Analysis.  Slow Rabbit?  That is a measurement against which an Investment Advisor measures their performance to make their performance superior.  The slower the rabbit the better the advisor's performance looks.   So too is my opinion of the FED's measurement "rabbits".  Every month we get a number of reports on inflation to consumer confidence to measure, which the FED uses to measure their performance in adjusting interest rates and FED Policy.  I remember when the FED made an adjustment to Inflation and CPI numbers to omitting gas and food from an index.  What sort of index on the cost of living does not want food and energy in it?  The basics of life... Food and energy for homes and business and cars.  The largest share of the poor 's budget to live on is dependent on energy and food.  So are the FED gov
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The Problems are the Path: New Standards in Residential Real Estate and the FED on Interest Rates

  The National Association of Realtors nationwide settlement that takes effect August 16, 2024 will create a new standard in Residential Real Estate. Prior to the settlement buyers and agents would link up, be shown property and made offers with the knowledge that the seller had posted on the Multiple Listing Service the seller's intention to pay the buyer's agent his commission and how much! The new rules change dramatically.  The change may put many buyers on a defensive path of "what if".  The path is that the buyer will be required to sign a Buyer/Broker Fee Agreement that states the commission their agent/broker will have negotiated with the buyer to be paid if their agent/broker represents the buyer in a purchase. The agreement has a clause that states the agreed commission of the agreement will be offset by any fees received from the seller to the buyer's broker. This may cause buyers to worry, what if the seller will not pay the agreed fee the buyer signed
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The Problems are the Path: Goldilocks Recession and the FED

You all know the story about Goldilocks and the Three Bears...Don't You??  Let me summarize it here.  Three Bears: Papa Bear, Mama Bear and Baby Bear lived in the Woods.  Mama Bear made porridge.  Poured in Papa Bear's Big Bowl, Baby Bear's mid sized bowl and Mama Bear's small.  It was Too Hot.  They went for a walk and here comes Goldilocks skipping through the forest.  She sees the open door to the the Bear's house and walks in.  She was hungry and the porridge smelled so good.  Papa Bear's was too Hot, Mama Bear's was too cold....BUT Baby Bears was just right.   So we are in the Goldilocks' economy.  The last US Government report had July with a 2.8% GDP growth rate and a 2.5% inflation rate.  The stock market was hitting new highs and property prices kept moving higher with little inventory.  Mortgage rates were above 7% with affordability still big question.  The FED's measurement of inflation still had two areas that need to come in.  The Stock
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The Problems are the Path: Recession Part 2

Where do I start?  The layoffs continue in Silicon Valley.  According to Layoffs.fyi, 107,370 workers have been laid off to date in 2024 by 366 tech companies.  Foreclosures are popping up in Paradise as Zillow notes foreclosure on Oahu, the most expensive state in the US per cost of living index.  Locally Notice of Defaults are increasing in the Commercial Sector for the smaller projects where investment groups took too much leverage and now are faced with an expiring mortgage with vacancies, permit violations, red tags and inability to refinance without contributing extra equity for a new loan with rates doubling the previously expiring loan. Commercial buyers are looking for 7-9% Cap Rates.  Sellers are wanting 5% or even sometimes lower.  Triple Net buildings for Pharmacies, banks, discount shops . That does not include the large Commercial Projects that line El Camino Real in Silicon Valley or the offices of San Francisco and San Jose who are a major subject matter for newspapers
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