The problems are the Path: Man Plans GOD Laughs

 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 variable rate loans.

1. Plan #1. Rapid rise in interest rates would confine consumer spending and corporate profits and cooling a Red-Hot Economy.  It has not worked out.  Homeowners refinanced mortgages at low rates.  Corporations borrowed at low rates.  The large cash reserves created by the lower rates were put into Government short term debt at +5% rates.  GOD Smiles!

2.  Plan #2. Add to debt using lower interest rate add on debt expecting to refinance all debt at lower rates.  The rate rise created chaos.  Owners face inability to cover debt payments with drop in occupancy of office buildings. Debt refinancing is at higher rates.  New rates and financing will not be covered by income from property. GOD giggles.

3. Plan #3 Investor Groups create investment pools to buy, fix and flip commercial properties and single family rentals.  Property construction costs uncover expenses not planned, market softness that will not cover total costs, lenders refinancing rates too high to cover costs.  Add to this investors were looking for short term investments not longer term developments.  GOD Laughs

4.  Plan #4. FED plans on rate rises will stop rising home prices and month rent.  Rents continue to rise and home prices are not falling to plan.  The refinancing of mortgages leave owner reluctant to sell and loose the low rates for newer higher rates.  GOD Continues to Laugh

Rental Houses Aftermath

Investors have been shedding rental properties from the period 2017-2022.  California with the most single family rentals in the nation at 15% or 2.1 million units lost 87,548 units.  Across the US the only states that have had an increase is Texas, +53,414, Alabama, +7473, Mississippi, +1747, New York, 6017, Montana. 3753, Oklahoma, 1818, Maryland, 1471, Rhode island 3251.

Who owns houses taken off rental?  California ranked #1 with 6.8 million units, 9% of US total.  Texas is at 6.3 million, Florida is at 4.8 million, Pennsylvania at 3.4 million and New York at 3.2 million.  California added 400,768 owners of single family homes in the past five years, a 6% gain.

Bottom line it is a movement from Weak Hands to Strong Hands as single family homeowners with a 10,20,30 year time frame think long term and hold residential real estate.  Speculators added to GOD's laughter. California still retains the title of most rentals in the US at 23%, down from 25% since 2017 versus 18% in the US.

Liquidations of real estate in the Bay Area has the distinction of the "Most In The Red Sellers" in the country.  One in eight sellers in this part of the country have taken a loss.  That may be a small number when the losses from the Commercial Real Estate Market take hold.  From small commercial properties of less than $10 million to those of hundreds of millions of dollars and more have yet to be totaled.

According to Redfin from August to October 2023 the average loss per sale in San Francisco and San Mateo county was $122,500.  Lesser in other parts of the Bay Area, but still a loss.

Zillow continues to forecast lower home prices, minus 2%-minus 5%, throughout the US in 2024 with two exceptions Phoenix and Tucson Arizona and South Pines North Carolina.

2024 will continue to see lack of inventory, some weakness in sales prices that will be depend on area to area.  Demand will fluctuate for location within a city or town, to location within a state to location within the country.  Demand will be affected by interest rates and mortgages.  At present there is a 52% chance the FED will lower rates by May 2024.  52% is not something I would make a long term decision on.  A slight % in a flip of a coin!

Don't make your real estate decision for the short term.  Think long term like the recently deceased partner of Berkshire Hathaway, Charlie Munger, think 10,20, 30 years out.  NO MATTER HOW OLD YOU ARE!

Buy real estate that you can create value, not fully valued, if you are cost and value conscious; irrespective of, it being commercial, single family rentals or single family residences.

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