McKae Properties Real Estate Market Commentary

The last 2 months of the year are, or were, normally tied to "clean up" work.  Inventory was thin.  The properties that remained on inventory were usually: left overs from the year that have not sold, properties added due to moving or estate sales, and like in prior years from notice of defaults and foreclosure notice.  Buyers were generally on their hunt to find price weakness and reason for the reason WHY these properties have lingered on the market.  The general answer to WHY were they were OVER PRICED from the start.  Either they were overpriced due to condition or comparatives.   From 2020 forward we have had a dramatic change to the Supply/Demand ratio.  The Pandemic took supply from the marketplace.  Whether that the supply was housing, restaurants, workers entertainment and travel.  Everyone was hunkered down in their homes fearful of the infection from others fearing all the horror stories of death.  A Present Day Black Plague was circulating the world.  The Federal

Looking back in past messages you will find a comment I made on the course of long rates, 10-year plus US Treasury Bond Rates.  In particular the 10-year bond is the bond that makes all mortgages for single family homes.  The yield curve will correct as the FED lowers interest rates on all bonds from 1-year US Treasuries back to the 30-day Treasuries.  The FED rates will come down and therefore so will the yields.  The change will be the long term rates of US TReasury Bonds will go up! Here is the present outlook.  The outlook is based upon the Swap Market that is used to trade one set of short term bonds for another set.  A bit like rolling maturities.  All the Swaps do is indicate the market forecast of FED action in where rates will be after the next FED meeting. Date of FED Mtg.          Rate Forecast.           % Certainty December 18, 2024......4.42%........................86% January 19, 2025.........4.20%........................89.8% March 19, 2025............3.956%............

If one can get their faces off the Election and look at how interest rates will affect Real Estate, there maybe a chance Buyers can manage their decision to buy a home or invest in real estate. The frustrating event of a rate cut of 50 basis points, or one half of one percent has created, most buyers and investors with, a HUH?  Moment.  The mortgage rates dropped to 6.09% on the day of the interest rate cut by the FED.  On the investor side, interest rates for commercial properties dropped, but the down payments remained at 35%.  No big benefit there.  The Yield Curve corrected further with the 2-year Treasury Bonds dropping below the 10-Year Treasury Bonds.  A major improvement with the first time in years that the interest rate market was not forecasting a recession.  That is really good news! What happened after that was something I expected, the most market commentaries did not.  The Ten Year US Treasury Bond yield increased!.  This is normal for a growing economy, in our case a Go

The FED followed the analysts forecasts on a rate cut. One member dissented.  The Trump appointee felt that the inflation figures are not in line with the FED Model.  We will see. The Yield Curve is coming into line as the 30-year, 10-Year and 2 -year are now in line to indicate no Recession.  The 1-year is quickly following to a few basis points above the 2-year.  So all is well in the Government Market. The follow up by the FED looks to be another cut shortly.  Consumer Confidence is falling.  The Census forecast of growth next year is down.  The commercial market is under pressure as owners from the multi billion and multi million properties are taking a toll on the smaller investors as the inventory of smaller investor properties are flooding the Commercial Listing Markets. UNEMPLOYMENT?  According to the Thursday September 26, 2024 Wall Street Journal the unemployment numbers are forecasting recession.  More than enough reason for the Zillow numbers to forecast a decline in home p

The first knowledge I had with the concept of the Slow Rabbit was when I attended the Wharton School of Business Management Program for Investment Management Analysis.  Slow Rabbit?  That is a measurement against which an Investment Advisor measures their performance to make their performance superior.  The slower the rabbit the better the advisor's performance looks.   So too is my opinion of the FED's measurement "rabbits".  Every month we get a number of reports on inflation to consumer confidence to measure, which the FED uses to measure their performance in adjusting interest rates and FED Policy.  I remember when the FED made an adjustment to Inflation and CPI numbers to omitting gas and food from an index.  What sort of index on the cost of living does not want food and energy in it?  The basics of life... Food and energy for homes and business and cars.  The largest share of the poor 's budget to live on is dependent on energy and food.  So are the FED gov

  The National Association of Realtors nationwide settlement that takes effect August 16, 2024 will create a new standard in Residential Real Estate. Prior to the settlement buyers and agents would link up, be shown property and made offers with the knowledge that the seller had posted on the Multiple Listing Service the seller's intention to pay the buyer's agent his commission and how much! The new rules change dramatically.  The change may put many buyers on a defensive path of "what if".  The path is that the buyer will be required to sign a Buyer/Broker Fee Agreement that states the commission their agent/broker will have negotiated with the buyer to be paid if their agent/broker represents the buyer in a purchase. The agreement has a clause that states the agreed commission of the agreement will be offset by any fees received from the seller to the buyer's broker. This may cause buyers to worry, what if the seller will not pay the agreed fee the buyer signed

You all know the story about Goldilocks and the Three Bears...Don't You??  Let me summarize it here.  Three Bears: Papa Bear, Mama Bear and Baby Bear lived in the Woods.  Mama Bear made porridge.  Poured in Papa Bear's Big Bowl, Baby Bear's mid sized bowl and Mama Bear's small.  It was Too Hot.  They went for a walk and here comes Goldilocks skipping through the forest.  She sees the open door to the the Bear's house and walks in.  She was hungry and the porridge smelled so good.  Papa Bear's was too Hot, Mama Bear's was too cold....BUT Baby Bears was just right.   So we are in the Goldilocks' economy.  The last US Government report had July with a 2.8% GDP growth rate and a 2.5% inflation rate.  The stock market was hitting new highs and property prices kept moving higher with little inventory.  Mortgage rates were above 7% with affordability still big question.  The FED's measurement of inflation still had two areas that need to come in.  The Stock

Where do I start?  The layoffs continue in Silicon Valley.  According to Layoffs.fyi, 107,370 workers have been laid off to date in 2024 by 366 tech companies.  Foreclosures are popping up in Paradise as Zillow notes foreclosure on Oahu, the most expensive state in the US per cost of living index.  Locally Notice of Defaults are increasing in the Commercial Sector for the smaller projects where investment groups took too much leverage and now are faced with an expiring mortgage with vacancies, permit violations, red tags and inability to refinance without contributing extra equity for a new loan with rates doubling the previously expiring loan. Commercial buyers are looking for 7-9% Cap Rates.  Sellers are wanting 5% or even sometimes lower.  Triple Net buildings for Pharmacies, banks, discount shops . That does not include the large Commercial Projects that line El Camino Real in Silicon Valley or the offices of San Francisco and San Jose who are a major subject matter for newspapers

Recession: " ...a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarter", from a 17th century definition it is, "...a temporary suspension of work or activity".  The Present Day standard needs measuring devices or formulas, the 17th century is simply put and to know that there has been a decline in business is easy to experience without a Economist declaration. I have found that the best place to see the beginning of a recession is the reduction of spending by the "Nouveau riche".  There is no better place to determine a recession other than to look at Bordeaux Future Sales.  The premise on Future Sales is from the en primers  of the Bordeaux region who sell futures in spring after a harvest.  They get cash up front to finance the next crop and the consumers get a discount on wines that will be bottled two years later.  China was booming the World was bo

The stock market was up over 300 points before the FED made their announcement on no interest rate cut.  Then the follow up by Chairman Powell put the icing on the cake.  The key comment to my evaluation is: "the decision to cut rates would be a consequential one because it could ignite substantial market rallies that boost spending and investments".  There in lies the crux!  The stock market is too high and is feeding spending in their belief.  Real estate is too high and is curbing affordability and fueling speculation in flipping....my comment not FED.  since then the stock market has lost steam and has had negative results.  UP for the week but rally stopped since Powell spoke. The target levels of 5.1% for end of year 2024, 4.1% end of year 2025 and 3.1% for end of year 2026 are nothing more than target based upon hope....again my opinion!  If Trump wins all the targets are off the table!  Trump has stated he wants or is considering firing Powell.  That would mean a Stal

The potential of the passing of this act will have the following implications: 1.  The act could control properties presently exempt; such as, single family homes and new construction 2. More cities could expand rent control with the passage of this act. 3.  Removing Costa-Hawkins could lead to Vacancy Control in cities with rent control, limiting landlords ability to raise rents. 4.  The Act represents a broader shift of the California Legislature towards stricter housing regulations; thereby, creating uncertainty in real estate  investment analysis. 5.  Uncertainty could upset housing market balance with unfortunate circumstances. "The “Justice for Renters Act,” seeks to repeal Costa-Hawkins entirely, allowing for strict rent control on all types of housing, including single-family homes and newer apartments. It would also eliminate the ban on vacancy control, significantly impacting landlords’ ability to adjust rents when a tenant moves out and a new renter moves in. Compoundin