The Problems are the Path: The FED Picks Up The Pace. What does the FED See?

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 prices.  More than enough reason for Buyers to wait to buy.  More than enough reason for home prices to soften and more price cuts.  More than enough reason for Days on the Market to expand.  More than enough reason for investors to look at Multi-Family homes as an investment.  Fearing job security is a sound reason to stay as a renter and hold off making the biggest purchase of their lives!

Now for those with a secure job, large investment portfolio, and the ability to pay cash it is Buying Season.  There is an Old German Saying my former partner in real estate once said...Schadenfreude....Happiness over another's misfortune!

In these times of uncertainty it is those who are willing to step up in the face of uncertainty to grasp the golden apple.  Are you one of them?

While the Yield Curve has flipped from Inversion to normal indicating no Recession.  The market is giving contrary indicators. Layoffs are spreading from the Technology area to the industrial sector and Airline...Southwest...is laying off workers.

Residential properties are under pressure as Zillow is now forecasting 3-4% declines in once chosen California Residential areas, cities and towns.

The latest forecast of buyer attitude with mortgage rates dropping from 7.125% to 6.125% on 30-year mortgages is dire.. buyers are taking a look and see attitude on buying.  The chatter is that buyers are looking for lower mortgage rates with the anticipation of more rate cuts to come.  Logical thought when the cost of ownership is really what one pays a month for the mortgage payment, not the price of the home.  The second reward for waiting is home prices are falling as sellers see buyers are holding back.  The seller cuts the price to a point affordability will match with mortgage payments.  That all adds up to a self fulfilling prophecy.  WE Wait,Rates come down, Sellers cut prices.....A win win for buyers.

So how to negotiate this quandary?  Offer 10% below list is my suggestion.  Sellers list below whatever the listing agent recommends.  There is never too low as buyers will recognize value.  That is a tough acceptance for sellers who have had it their way for so long.  Things do change!  An Old Chinese Curse...May you live in a changing world!

The irony of this market is that Commercial Properties are still looking for buyers with low cap rates from sellers, when buyers want high cap rates to recognize economic risks.  There is still a feeling from Commercial Investors that things are not that good.

The issue of investing in a Presidential Election year is best to wait to see who is elected before making investments.  Once in office and the lay of the land is set in Congress, the ability to pass bills will be noted for investors to begin to address their 4 year holding pattern.  The only issues that hangs around the American People's necks are Deficit of Payments and the expanding level of US debt.  Soon it becomes an issue of servicing debt especially with rates at high levels. Then deficits expand with the level of debt expanding as the FED issues bonds to finance the deficit.

This concept of election year of cutting rates was a reason I thought a 1/2 point would not happen. Now that it has happened, my thought is....What does the FED see I don't see?. There is a RISK out there that the FED sees.  What is it?

One last thought on that is the FED Balance Sheet. As the FED liquidates Bonds the Bonds are with lower interest rates.  That means the FED loses money. How much money can the FED loose?  Infinet  The FED is a different entity, they can capitalize the loss and hold the loss as an asset to offset it with gains in the future. So it is in the FED's best interest to lower rates, liquidate asset to break even or gain on sale to eliminate Capitalized loses.  That liquidation has the effect of taking money out of the system and keeping the inflation low or at least declining. That slows down the economy!

So What Does the FED See?

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 prices.  More than enough reason for Buyers to wait to buy.  More than enough reason for home prices to soften and more price cuts.  More than enough reason for Days on the Market to expand.  More than enough reason for investors to look at Multi-Family homes as an investment.  Fearing job security is a sound reason to stay as a renter and hold off making the biggest purchase of their lives!

Now for those with a secure job, large investment portfolio, and the ability to pay cash, it is Buying Season. There is an Old German Saying my former partner in real estate once said...Schadenfreude....Happiness over another's misfortune!

In these times of uncertainty it is those who are willing to step up in the face of uncertainty to grasp the golden apple.  Are you one of them?

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