McKae Properties Real Estate Market Commentary

There was a time in my past newsletters/commentaries I believed the rise in interest rates would dampen real estate prices and cause the affordability index to move in favor of buyers, which we had.  I then went to look at "Asset Inflation" to put down speculation and lower asset prices of Stocks, Bonds, Real Estate and Esoteric Assets, which we had.   The rise in interest rates have had an impact, but far from what the FED expected, and many economic analysts expected.  The main reason, in my opinion, is that the Money Supply has not contracted.  Some +$9 trillion was pumped into the economy from 2020 to 2022.  Of that only a small percentage has been spent.  Goldman Sachs has stated that 65% of those saving will be expended by the end of 2023.   What we have is a little below $9 Trillion in the FED's balance sheet.  The FED has not contracted Money Supply as they raised interest rates.  There could be some political reasons as hig...

One of the most enjoyable classes I had in college were in the Statistics and probability classes.  I must admit my greatest source of successes from these classes in my formative days was Black Jack.  A colleague of mine named Tony, who looked like Tony Soprano and was from New Jersey, and I were so successful at in that in the mid 70's we were told not to come back to Las Vegas.  So it became a rather humorous endeavor when I listened to Economists talk about the various forecasts they had on the economy and where the future was going. Another  benefit  was in viewing the FED and their attempts to use interest rates to solve and economic situations.  The Federal Reserve of St, Louis published an economic report which detailed the past actions of the FED with interest rates.  I can say, that my interpretation was the FED was alway Behind the Ball.  They either failed to cease their interest rates cuts until inflation started and ceased to act fas...

 The National Association of Realtors, NAR, creates and Affordability Index  on a regular basis.  It really defines how the FED uses certain tools to determine inflation. It also gives insight on how various real estate markets will perform.  I see the CPI as being 30% home prices and rents. The index is simple, the higher the number the greater the affordability.  The lower the number  the more unaffordable the area.   Last letter I took a swipe at our state legislature and those who support multiple housing units in all the state towns.  I spent too many years in local politics not to realize that politicians want to get elected.  It is not logic of the laws they pass.  They capitalize on voter ignorance more than voter intelligence.  If the voter based elections on their representatives intelligent work there would be a 99% turnover in all political posts!  In my opinion and experience. Woodside, as an example, is to pu...

Interest rates rise.  No end in site, YET!  CPI rises, the best Valentines gift for your Lady Faire is a Dozen Eggs.  Price cuts are beginning to tumble out in the Ultra High End and Luxury Markets.   Spec Builders in the Luxury Markets are trying to sell projects on a "To be completed basis".  Once in demand "medium priced homes" are beginning to see price cuts.  The Medium Price of an Oahu Home has now broke below $1 million to $986,000, inventory doubles.  Locally, the real estate forecasts bounce like a drop of water on a hot skillet.  The latest forecast is a rise for 2023 of 1.5%, from a slight decline.  We will not know what the future will bring until 30 days from now. Then, the inventory of homes once taken off the market at the end of 2022 may come piling back on the market.  Real Estate Markets across the Nation are all seeing price cuts.  The once "hot markets" that the "Work From Home" group flooded to are weak....

The problems we have seen in the real estate market started with the aggressive push in values due to cheap money by the FED and the expansion Money Supply of over $9 Trillion to the FED's Balance Sheet.  Today the FED's Balance Sheet is $8.58 Trillion.  FED rates have went from below 1% to 5.25-5.75.  That relates to Morgage rates of less than 3% to a high of 7.3% in 9 months!  Or; $2,500 per month Interest Only mortgage on $1 million to $6,083 per month.  A rather large jump in a period from roughly March 2022 to November 2022.   In my past commentaries of early 2022, I had forecasted a decline in the average price of homes in the Bay Area which occurred. What did also occur was a decline across the US in home values.  The largest declines where in areas where the "work from home gang" went to live.  San Francisco saw the biggest drop in home values in the Bay area and Rents.   I was amazed on how well the Santa Clara valley, aka...

Welcome 2023 with an out pouring of new listings.  As we ended 2022 the number of active listings began to lessen by the month, week and day; until we had the old stand firm group who just wanted out.  As I look at the Hot sheet I have established with MLS Listings I see all the new listings for the past 7 days; along with, sold, pending, contingent, list price decreased, canceled, expired and withdrawn.  The new listing's out distance the sold's so far.  Price cuts are starting to emerge. Market Watch New Listing (51) List Price Increased (1) List Price Decreased (6) Transaction Fell Through (1) Listing Back On Market (0) Contingent (5) Pending (14) Changed to Sold (13) Changed to Rented (0) Listing Expired (0) Listing Canceled (0) This action is unusual for the beginning of the year.  It is not abnormal for listing's to expire and cancel or withdraw at the end of a year.  They normally stay off until after Valentines Day and then flood the market.  H...

It seems to me the problems we experienced in 2022 are enough for us to endure, let alone, for another year.  Statistically stock market declines of the 20% range , as the one we experienced in 2022, are not experienced the following year.  Real Estate is a different asset in which to use that statistical analysis on.  We live in an area that is a Camelot.  Irrespective of what happens in the world around us, Silicon Valley remains resilient and firm.  The large advances in real estate we experienced from the beginning of the Pandemic, were not unexpected. What we have to work with is the large amount of speculation that needs to be wrung out of our real estate market.   The concept of Risk Free Rate of Return is the major measurement that will or should be used to determine purchases or investing.   2020 saw an enormous amount of money created in the money supply.  Some $9 trillion the Federal Reserve Governors created and disbursed int...