McKae Properties Real Estate Market Commentary

  Startup bubble fueled by Fed’s cheap money policy finally burst in 2023 PUBLISHED THU, DEC 28 2023 9:00 AM  After years of record venture investments tied to low interest rates, cheap money has stopped flowing in startup land, leading to high-profile failures.WeWork and Bird declared bankruptcy in 2023, while pandemic plays like Hopin and Clubhouse faded into oblivion.“Prediction: 2024 is the year we finally bury the class of ’21 ZIRP ‘unicorns’ and start talking about a new crop of great companies,” Jeff Richards, a partner at venture firm GGV, wrote in a post on X. Easy Money created more risk than the inexperience entrepreneur.  The plan would to go back for more money when problems erupted.  Then came higher interest rates.  Failures, bankruptcies followed with empty offices and work from home.  Nothing new here! This year, it all unwound. With the Fed  lifting its benchmark rate  to the highest in 22 years and persistent inflation leading consumers to pull back and businesses to

  "Much Ado About Nothing" is the title of a well-known play by William Shakespeare (1599).  The phrase was assimilated into the English language and used when someone is overreacting and makes a big deal or fuss over something unimportant.   The  Fed voted last week to hold rates steady once again, and its updated projections showed an expectation of three rate cuts in 2024.  That caused a rally in stocks and bonds, with the Dow Jones Industrial Average jumping to a   record high . “It’s not what you say, or what the chair says. It’s what did they hear, and what did they want to hear,” said Chicago Fed President Austan Goolsbee said on CNBC’s “Squawk Box.” “I was confused a bit — was the market just imputing, here’s what we want them to be saying?” “The market expectation of the number of rate cuts is greater than what the SEP projection is,” Goolsbee said. Three Rate Cuts, to me, means that the FED is opening a safety valve in the event of a crisis in which the FED must ste

 I love that phrase.  Its origination is a mystery to me, it could have come from something Biblical.  Throughout my career there are numerous times when chaos was created, that GOD was laughing at the plans of Man. Ladies, don't get offended.  Biblical references all reference Man not both sexes ( the main reason I think this is a Biblical Quote).  In fact, I doubt if chaos would have been created if Woman Planned.    The past plans of Man of lower interest rates being a new normal has created chaos for those both of minimal net worth and experience to those of substantive net worth and education and experience to fall into a crisis of credit and net worth devaluation.  The Trillion or so dollars in Office Building Debt that is supposed to come due in February 2024 is one example of the plans of Man that go awry.  The expectation that both office buildings would remain full and rising rates were guaranteed were matched with add on loans that were short in duration or worst variabl

Year end pressure to sell is compounded by high interest rates and the desire to eliminate costly unprofitable investments appear in the large commercial projects and the smaller projects.  It takes some research to find an opportunity among the offerings.  Hedge Funds, the so called Smart Money of sophisticated investors, have expanded on their bets that interest rates will go higher than they are now.  That bet is levied via short positions in Government Bonds.  A short mean they sold something that they bet will go down in value as interest rates go up. That bet will be a financial reward to hedge funds, but will turn to be a liability and loss to Commercial investors who own commercial property with variable rates or mortgages that are maturing within a short time frame, say 6-months or less. It is well publicized the Billions of dollars in debt that will mature next year for the Office building across America.  There is little in the news that deals with all the smaller transactio

Well Fargo has come to my way of thinking that the rise in interest and the resilience of the public to higher interest rates with their large cushion of cash from the Pandemic will put the FED in a longer period than all expect of high interest rates. Wells further states that the longer period of 8% mortgage rates will have an effect of dipping real estate into a recession. Agreed there are a number of RoadBlocks for 2024 Political Unrest and the Global Economy Influence of Hybrid Work Housing Shortage Artificial Intelligence Labor Shortage Migration Real Estate Armageddon: The economy, interest rates and inflation coupled with large amounts of debt coming due in the Federal Calendar and Commercial Real Estate Supply Chain Logistics and Onshoring Pricing Resets of Cost of Capital Decrease Real Estate Values America's Aging Infrastructure To prepare Home Buyers a lesson in Home Mortgage Selection is highly recommended. Here are some of the mistakes Home Buyers make when selecting

On a historical basis as the year end approaches there is a tendency to clean the books.  Inventory is marked down, offers are taken and unsold inventory is taken off the market to install once again the following year. The issues at present are inflation and the inability of the FED to get immediate satisfaction.  Or, at least, immediate satisfaction as the Media seems to want.  The FED on a historic basis takes time to wait to see how the populace reacts, how business reacts, how the investment community reacts.  Now add to the FED's actions the political action of deficit spending.  Spending to support allies at war, spending to support immigration issues both pro and con, spending to fund already in existence budget items.  Finally, we need to look at savings from the Pandemic years. In the past cycle of rising interest rates, we need to go back to the 70's.  Interest rose for the same reasons they are rising today...inflation.  Unfortunately; the increase in rates did not

 The last letter I detailed the yield curve, as seen below. TREASURYS TICKER   COMPANY   YIELD   CHANGE   US1M U.S. 1 Month Treasury 5.424 -0.004 US3M U.S. 3 Month Treasury 5.509 0.013 US6M U.S. 6 Month Treasury 5.564 0.006 US1Y U.S. 1 Year Treasury 5.39 0.029 US2Y U.S. 2 Year Treasury 5.016 0.032 US10Y U.S. 10 Year Treasury 4.616 -0.039 US30Y U.S. 30 Year Treasury 4.756 -0.072 Prior to the Hamas attack on Israel, the 10 and 30- year  bonds were on the verge of breaking 5%.  Monumental; in that, the break would mean bonds will be competition to any investment decision.  The Institutional Investor; which dominates our investment markets, can now look a long term treasury bonds to finance the actualarial  returns they are to provide to their clients.  The rise in interest rates is a major threat to growth stocks; such as technology, as the high return is more competitive to volatility and the lack of a current return in dividends.  Technology has had a great run in equity values and fed

COMMENTS ON INTEREST RATES, YIELD CURVE AND INFLATION AND THE AFFECT ON HOME PRICES, REAL ESTATE INVESTMENTS AND INVESTMENTS IN GENERAL A Yield Curve is created by the daily rates of trading in the U.S Government Bond market from 30-day Treasury Bill to 30-year Treasury Bond.  The rates below are an example from www.cnbc.com TREASURYS TICKER COMPANY   YIELD CHANGE %CHANGE US1M U.S. 1 Month Treasury 5.394 -0.006 0 US3M U.S. 3 Month Treasury 5.498 0 0 US6M U.S. 6 Month Treasury 5.564 0.006 0 US1Y U.S. 1 Year Treasury 5.473 -0.003 0 US2Y U.S. 2 Year Treasury 5.087 0.01 0 US10Y U.S. 10 Year Treasury 4.542 -0.016 0 US30Y U.S. 30 Year Treasury 4.669 -0.027 0 The data is from earlier dated CNBC.com Bond section.  It is a on going measurement of where each U. S. bond maturity was trading on a Daily basis.  This Yield Curve is "inverted". This means that the yields are higher near term than they are long term. The general belief among Economists and Traders is than when an Inverted Yi