The Problems are the Path: The FED and the Slow Rabbit

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 governors playing the populace to help their performance?

If so, the FED may have some surprises to their Slow Rabbit.  Record Harvest in grains will cause falling grain prices: corn, wheat, soybeans.  That will relate to falling meat prices as livestock are fed grain.  Gas prices should go down as ethanol as a supplement to gas will be lower.  

With inflation declining from supply not from a recession, interest rates will be cut to help the economy grow.  Now the $64,000 Question is what happens to housing supply and prices.  Interest rates decline does not automatically mean that the long term bond yields will decline.  What is will mean is that the Yield Curve will return to normal.  Interest rates near term will be lower than interest rate long term.

Those who were waiting to sell will find a better economy with inflation declining from oversupply; rather than, the FED choking the economy to pass out!

Do not expect an immediate Snap Back in real estate.  It will take some time to repair the Commercial Market.  Expect some losses and write offs on the high end.  Changes in the economy could resurrect the working in an office. 

There will still be an adjustment in the retail and banking sector.  Amazon and Costco and the other online vendors have crippled the Brick and Mortar vendors.  Online pharmacies are killing Walgreens and CVS along with the retail giants.  More stores will close.  The banks do not need large facilities any longer and more banks will close due to online banking and ATM machines.

Housing is a Question Mark.  There is evidence of slight declines in home prices per Zillow.  Is it enough to upset the market?  It looks like 3.5% declines for the year.  Not enough to upset the seller market but enough to help buyers with further declines in mortgages rates.  There is a slow change in the housing market as per a Census report.  The West Coast is seeing more sellers than buyers as is: Florida, Texas and Arizona.  The East coast is a Seller's Market.  A major change from the past 10 years plus.  California Dreamin seems to be a dead as Mama Cass.

The Rental Market is finding many landlords moving to sell their properties.  The Landlord/Tenant Act and subsequent tenant protection acts have put pressure on landlords.  The pressure has resulted from lawsuits by tenants and awards to tenants that have made those landlords who do not have the knowledge and support staff to advise them on following state laws active sellers of single family homes.

The rental market is under pressure as those looking to fix and flip are turning into renters waiting for a better price.  The high stock market has turned many investors into property owners and landlords.  As previously stated the end result of these two inexperienced landlords are the lawsuits from the various Landlord Renter acts the  State legislature has passed and soon will become law.  I saw some 10-12 so far for this year.  An earlier Blog or Newsletter has a detailed list of the laws passed and soon or are enforceable.  Counties have set up Renter help departments to assist renters in filing suits against their landlords.  I have a few clients that have told me some horror stories and large settlement they made by court order to their former renter(s).  The Legal Department of the California Association of Realtors has news briefs that try to help realtors.  When working on rentals the best property is Corporate Owned.  the corporation attorneys keep the corporate owner within the law and out of court.  The other nervous situation for landlords is the threat of a Nationwide Rent Control Act.

Those landlords who want to sell and have not gotten their price are returning to the rental market with rents under the market with low deposits and month to month rental agreements.  BEWARE RENTERS.  The landlord can give a 30 day notice to vacate, without cause.

The results of Buyer/Seller Markets are deceiving.  As I review city by city is selected areas I see many cases of Sellers market with price cuts and sales below list.  A notable example of an exception was a recent sale of a Palo Alto home listed just under $3 million with 30 offers.  The exception is the average price in this area of Palo Alto is over $4 million.  A great E-Bay trick of underpricing to get action and over bids.  In this case the realtor did an exception job....worth his 2.5%?

The BIG WHAT IF is this month as the FED will decide on the direction of interest rates.  Inflation without home prices and rents are a poor measure...another Slow Rabbit.....but it gets Good Press.  The other item this week is Jobs.  So far it does not appear there is a slow down in jobs.

"1) Employment. August's employment report (Fri) should show payrolls rose by 200,000-225,000 to another record high and that the average workweek rebounded from July's weather-depressed reading. In any event, the average monthly increases recently suggest that the labor market has normalized back to its pre-pandemic average of roughly 170,000 per month."  Ed Yardeni Quick Takes

If the FED holds the line there will some interesting consequences.  On the other hand, I wonder if .25% will be taken in a positive frame of mind?  I have a feeling with the sell on news in Nvidia has had or will have some carry over as many stocks have move too far on over optimistic economics, that too could be the effect of a FED decision.

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