TRUST
There was a time early in the founding years of our Democracy that store of value was the best measure of Trust. Early savers were savers that put excess savings into real estate. A home, extension of their present home, a farm and or a extension to their present farm. The farms would buy better newer equipment as a method to increase their return. The currencies of the past were gold or silver. There was no fiat currency backed by any Full Faith and Credit. When paper currency was added it too was backed by the gold or silver behind it. Well before the formation of the Federal Reserve System, banks were local institutions who issued their own currency. A holder of such a note for a specific amount, could go into the bank who issued the note and demand the gold or silver backing their note. It is here when banks began to have Trust and Faith issues. Banks gave loans to businesses and individuals that had a pay back in time. The savings and notes were backed by gold or silver, but in many instances there was not enough gold and silver to back all the savings and notes in circulation. The gold and silver were part of loans issued by the bank. At any moments notice a RUN on the bank could occur. Notes could not all be redeemed, nor could all savings accounts been returned; until all loans were called and paid off. The result was a bank failure.
Then came the concept of a fait currency, no backing of gold or silver. Just the Full Fait and Credit of the U.S. Government. Banks were forbidden to issue their own currency. This became the Provence of the U.S. Treasury Department.
When those failures came about in the past, the populace went back to their old ways of saving. They bought real estate, the kept gold or silver at home in a save, under the bed or under a floor board. In both examples they were able to keep their eye on their accumulated savings. A rather complicated system of having your gold weighed when buying a property or buying food and equipment. But much safer than a local bank which could fail or be robbed.
We have seen in our past recent history going back 100 years, that even with the Full Faith and Credit of the U.S. Government with the FDIC there are still bank runs. The basic cause of all those situations was not enough liquid assets to meet demand or liquidations. As in recent experience Silicon Valley Bank was taken over by the FDIC, just as Washington Mutual was. In the recent experience with Silicon Valley Ban, a buyer came in for the loans and deposits. The rest of the bank is up for the best bidder. So far their are none.
Silicon Valley Bank is a local experience. It served the technology industry, just like Texas Bank's served the Oil and Oil Services Industry, failures occurred during this period when the price of oil collapsed. As in Texas, Silicon Valley had reverberations across the world. Today we have our failures locally reverberating in Europe as Deutsche Bank, Credit Suisse and UBS are now in question.
As before the TRUST goes back to what was historic. The trust in Real Estate, Gold, Silver and today Crypto Currencies. You can add to that currencies as the Japanese Yen and US Treasury Bonds.
Real Estate has a unique position in the Safety Net. There are over priced areas; just as their are under priced areas. The difference between the two areas is the area's economic situation; matched with affordability.
Technology has been the driving force of growth. Today that growth has ended. Layoffs, relocations and taxes have caused weak prices in Arizona (Phoenix), Texas (Austin), California (San Francisco, SanJose), Washington State (Seattle), Oregon (Portland).
In our area this price weakness is held up by the flow of funds from large savings accounts to real estate. There is a low inventory that becomes lower with every day new listing are less than Contingent, Pending and Sold transactions. This leads to a decline in inventory.
To give an example, I watch the new listings, contingent, pending and sold properties in an area from South San Francisco to Los Altos. On a daily basis there are more homes sold, contingent and pending than there are new listings. ( See chart at end of Newsletter)
When I take the sold properties and examine them one by one I find another variation. The more work need to be done the lesser the chance of a sale at list. The more perfect the house the better the chance of getting list and or a premium.
The lesson is the buyers today do not want to fix anything. They want an up-to-date home, with all landscaping in, newly painted and up-to-date fixtures and appliances. The further a home moves from that level the less it will command in price. That takes to a level the the Fix and Flip Buyer comes in to buy at a discount. They then put the property into prime condition and sell at a premium. Lesson number one to all sellers, up date, repaint and remodel and re-landscape. Lesson number two for sellers, discount the pricing to get buyers interested enough to calculate the cost or updating into the appreciated value. Realize this there are less of Lesson number two buyers, than there are lesson number one buyers.
Lessons for buyers are several. This is due to the bifurcated market place. Lesson number one, don't assume a fully modernized home has been built to code. Check with all the permits, contact the various building departments. The last thing you want to find out is something goes wrong and you find out a permit was never granted or final. Final means the inspector did not give the builder approval for the work done to code. Then it is Buyer Beware and the builder is gone or hidden behind various corporations that all disappear. That leaves the buyer with getting new permits and repairing the errors to code. Lesson number two, don't expect that you will pay all cash you will get a discount. There are many all cash buyers in our market place. Remember the amount of money in the Valley and the demand for "store of value" and the trust in real estate versus a deposit at a bank. Lesson number three, there are properties for sale that are offered at a discount due to condition. Review the Termite inspection and the Home Inspection. The termite inspection will have an estimate to repair. The Home Inspection will not. IT is up to you and your realtor to find a contractor willing to give an estimate to repair. Take the two expenses and add them to the sales price. If that sales price is equal to or less than the comparable of a recent updated sale, Buy It. If not, offer what would be a discount that takes it to the value to the market value. Lesson number four, there are notices of default and auctions scheduled. Those home owners who were laid off and have fallen behind on their mortgage payments are good candidates for the discounted purchase. Do not forget the "start up" creator who also will find it difficult getting financing now that Silicon Valley Bank is not there.
Here are the result of today's market action:
Very well thought out update. Thank you for sharing.
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