The Problems are the Path: FED Speaks, "Much Ado About Nothing"

 "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 step in and be the lender of last resort.  This does not imply Happy Days Are Here Again and we are returning to 0% rates again.  

The reality is interest rates are remaining the same and they will remain the same until the FED believes inflation is behind us or is appearing to be beaten.  

Mortgage rates will remain high, from a historic viewpoint.  Interest on credit cards will remain high all loans whether the asset will remain high.

Goldman Sachs has stated that the Residential Real Estate Market will be flat for 4 years.  Goldman forecasts FED to achieve soft landing in 2024, housing starts and home prices will tick higher while existing home sales will remain flat. 

Real Estate Investor and Mentor to the Residential Realtor community stated that the "US is entering the greatest real estate correction in my lifetime": Going to at epic levels".  The era will offer great opportunities for individuals to grab trophy properties from institutions that has never happen in our country.  

This may not be the return of 2007-08 when foreclosures on the market at highly discounted prices. It will mean that institutions or Commercial Investors of all sorts will be pressured by their maturing debt to sell at discounts that will allow buyers returns on their invested cash that matches returns on short term Treasury Bonds.

Will the FED control the Real Estate market or will it let the market regulate itself.  If the FED allows the Real Estate Market to regulate itself.  The FED will step aside and lower rates that fits the circumstances not the desire of investors and the Media supporting investors.  

The First Step is Rent Control that is going on numerous ballots.  Once that happens residential values stop going up and start consolidating.  

The FED's action and the subsequent rally in Stocks, Bonds and esoteric asset classes has in reality taken liquidity from the market.  Money held in saving vehicles went into those assets and out of the hands of consumer items to be purchased.

We have already been seeing prices or residential real estate sliding from list price to sales price; irrespective of the location.  Affordable homes have been the most resistant, but still seeing lower sales to list price with days on the market increasing.  The speculation or best stated the over pricing of homes by both seller and buyer has seen some dramatic cuts.  Movement to locales with lower entry levels in residential sales are becoming more noticeable and reportable in the Media.  

Commercial Real Estate still remains to be the best investment opportunity that Mr. cordone has referred to.  Too many novice investors without staying power are stuck in the same situation as large institutions owners with property of deconing cash flow and net operating income to cover debt.  A condition that eventually leads to foreclosure! 

NEWS FROM ST. LOUIS FED: Student loan debt may be contributing to the gap in homeownership among generations: Nearly 50% of Millennials with at least some college education have student loan debt in their 30s, compared with only 13% of Boomers at the time they were in their 30s. This student loan debt for Millennials could be making it more difficult for them to save up for a down payment on a house.

Closing item: Rents are down 3.3% nationwide.  Softening of rents will affect home prices.  Don't expect some crisis or collapse in either home prices or rents.  The case maybe more a reality check for landlords, home sellers, and agents.  The prices they are asking are out of line with choices available to the condition of the house.  The reality check will be seen in Zillow Estimates and other real estate on line services who use algorithms.  The numbers are just past over priced properties to create estimates that will no longer be valid going forward.  Remember high interest rates will slowly erode confidence on spending or overspending.  The end result is to be selective in home purchases, negotiate and investigate. 

As before, call or write for any question you may have and think of me of your "in the know real estate professional".