The Problems are the Path: Has the FED broken the Housing Market?
An interesting subject was posed recently by El-Erian, Chief Economic Advisor for Allianz. He states that The FED has destroyed the housing market in both supply and demand.
I have very little to support the actions of the FED as compared to similar events in economic history. The old adage, "Economic advances don't die of old age; they're murdered by the Federal Reserve", is not working now. FED actions in raising interest rates that will eventually affect force jobs to create layoffs, then people stop buying and in general we drop into a recession. Homes are foreclosed, earnings stop, savings are eliminated. The last time this worked in a resilient economy Chairman Volker took interest rates to 14.5%. We had a recession, foreclosures, bank failures, and large unemployment numbers added to a bear market in the stock market and the bond market. This was very effective FED action for one reason, Savings were eliminated by the bear market in stocks and bonds and savings wiped out by inflation and job loss. So far, everything is fine. Homes are selling, people are looking for homes, jobs are still in demand. unions are striking and getting large pay increases.
The FED prepared for a recession; from the Pandemic, that never came. People and technology adapted. When homes and rents became too expensive, people moved to locations that were less expensive and telecommuted. Office buildings that once were a feature of our civilization emptied. Cities that flourished due to work forces that either lived in the city or commuted to the city vanished! The tides rolled out and all the sunken ships and trash became visible. What was now visible was always there, it was not visible as the workforce busy on the streets to and from work. To and fro from gyms and restaurants vanished. Now the street people and there issues became something to solve. Why now? It was always there!
El-Erian is looking at the past and does not see the adaptability and change that comes from record savings and the expansive growth in Money Supply. The FED Balance Sheet has dropped but remains exceptionally high. The Fed or Federal Reserve Balance Sheet had a record +$9 billion at its peak to a little over $8 trillion. That is money in the savings accounts of all citizens and corporations in the US. The ability to have savings allows for a new life, a new business, a new investment. The ability of a recession by the FED is made more difficult due to the savings accumulated. It is a win win for the public. As interest rates increase, the return on savings increase. Pay a little more, NO PROBLEM!
Soft landing and no recession. Going back to the late 70's to 1983 when mortgage rates peaked at 14.5%, the concept of a soft landing was once spoken of but never achieved. Volker choked to death the growth. Then drove down rates to stop the economic system from imploding. As much as rates have increased the "Soft Landing"appears to be in force in Real Estate.
We still have vibrant real estate market where ever you look in California. It is not a Silicon Valley uniqueness it is a uniqueness of the real estate market all over the United Stated States. When I look at the markets all over Silicon Valley and other parts of California where there was population movement I see the same thing. The High End Luxury markets are on the verge of going from Seller's market to Buyer's market. The rest of the various towns and cities are solidly in a Seller's Market. Now let me give you an evaluation of the market's. They all have sold prices 8-20%+ less than list in the past +30 days. What that shows me there are buyer's irrespective of interest rates and FED action. Buyers that have accumulated savings and can either buy for cash or buy down interest on mortgages. Seller's are willing to discount their list price. " A willing seller and a willing buyer", the "Perfect Wave".
To the light inventory, it will remain as such until rates come down. That time will be much farther away than most think. 4% average mortgage rates will not be seen quickly. The FED governors are slowly making comments that there is time for their work. What that means rates will remain high! Then they will peak and fall. The average cycle is ten years. Nine more years to go!
Low cost basis will not change. So get use to light inventory. The new market will be in the new towns that have been established or older towns that have changed in character from Cowboy/Gold Rush towns to modern up-to-date communities. Have you ever driven to Folsom? I have and it seems like another Scottsdale Arizona. The hills around El Dorado Hills are dotted with new projects. Want an Atherton house, This stunning take on the desirable Belgium Farmhouse style. Located in the Serrano Country Club this 4800 square foot home boasts California lifestyle living with pool, spa, cabana and pool bath. From the high end appliances, custom cabinetry, top of the line lighting and thoughtfully curated tile, this one story great room concept brings the outside in with a large covered loggia for maximum entertaining. Additional standout amenities include 5 car garage for all of your toys and solar system with battery back-up. $3,560,000. The Serrano Country Club initial fee today is $23,000.
OR
This magnificent property offers an extraordinary living experience with its exceptional features and breathtaking surroundings. Situated on a sprawling 7.3-acre estate, this residence boasts a remarkable blend of luxury, privacy, and picturesque views. As you enter, you'll immediately notice the impressive design and attention to detail. Every bedroom in this home is en suite, providing ultimate comfort and convenience for each resident and guest. These master suites offer ample space for relaxation and rejuvenation. The panoramic vistas from this property are truly awe-inspiring. Enjoy the sweeping views of Folsom Lake, the majestic Sutter Buttes, and , the Sierra Snow caps. Step outside to discover the resort-like oasis featuring a sparkling pool, spa and an expansive patio offering true sanctuary for relaxation and entertaining. The interior of this home is adorned with luxurious finishes throughout. From high-end materials to exquisite craftsmanship, no expense has been spared in creating an environment of refined elegance. $3,499,999
For those interested in Menlo Park: Welcome to this stunning 5-bedroom, 4-bathroom home on an expansive .46-acre lot that exudes privacy and tranquility. Featuring a spacious 3,457 sq ft, this residence offers a versatile layout with a bedroom and bathroom on the main floor, along with a formal dining room, office, and a fully-equipped kitchen featuring granite countertops, a gas cooktop, and updated double ovens. The main floor showcases a sunlit formal living room with cathedral ceilings and large windows providing backyard views, while the family room offers a wood-burning fireplace and a built-in entertainment center. Upstairs, you'll find a loft, a primary suite with a sitting area, and a luxurious bath with double vanities, a jetted tub, and a sizeable walk-in closet. Two more bedrooms, another full bathroom, plus third bedroom with an en suite bathroom complete the second floor. This property also offers dual staircases, newly painted exterior, abundance of local views, lush landscaping with various trees, fire pit area, fish pond, pad w/electrical for possible hot tub. With no HOA or Mello Roos, and its proximity to shopping and Hwy 50, this home is a true gem.$1,185,000
Finally for those interested in Redwood City and San Carlos and 7000 sq ft lots: This is it! Located in desirable Stonebriar with no HOA is the dream home you've been looking for! This completely level 4BR/3BA single story on a large 0.25 acre lot with a gorgeous pool also has an extra wide side yard with its own gate & driveway for RV/boat parking. From the soaring ceilings and flowing floorplan you will be struck by the spacious feel and easy living this home offers. The great room concept in the kitchen & family room is perfect for entertaining and family gathering. The front bedroom has its own full bath, great for guests or in-laws. The kitchen has recently been remodeled with quartz countertops and luxury vinyl flooring. Many cabinets were added to this home for tons of storage. You will love the primary bedroom with its own outside access, and the en suite with separate sinks and a large soaking tub. Best of all it has its own private sitting room which could be an office, nursery, exercise room or ?. The backyard is a beautiful oasis with a gorgeous pool and water feature, and easy care artificial turf & covered patio for outdoor entertaining. It has Owned Solar for energy efficiency, a newer HVAC system & newer self chlorinating pool filter. With easy hwy access, shops & restaurants nearby plus a park and top rated schools, $950,000
There is a reason movement has been happening in Silicon Valley and where home owners can work from home or establish new life styles with highly affordable living.
Income Investors:
With the rise in rates and the liquidation of portfolios investors are looking for less volatility and stable returns without the gut wrenching volatility. As written in the past Car Washes provide steady income returns with inflation hedges and recession hedges.
Allow me to give a few California Properties for an example.
All numbers quoted subject to audit, P&L's for past 3 years and Tax Returns for past 3 years, inspection of property.
I. For the price conscious: $349,000 with a 39 year lease of $3850/month, Net Operating Income of $122,000 per year gives the investor a 2.86 year pay back. Cash only!
II. For an established Wash: $3,200,000, lease of $6000/month, Net Operating Income of $2,788,000.
65,000 cars a day. Turn key operation.
30 plus years car wash previously
With All These Water Restrictions in California, the Car Wash Will Be Soon The Only Place To Wash a Car (many HOA already have this water restriction/car washing, in their regulations).
Seller’s Financing
Brand New Machinery and Equipment. 110 feet of tunnel. Great for Full, Flex or Express Car Washes or any modification.
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