McKae Properties Real Estate Market Commentary

Wake up call has been blown to all quarters.  Interest rates are rising and the era of Free Money has ended.  The days of the stock market strategy of "Buy the Dips" and "it always will come back" are DEAD! The FAANG stocks are all in Bear Markets and every, or at least every, 2022 IPO is under water.  Sooner or later it returns to the 1970"s inflation and rising interest rates. The FED has made the big change of ending the "FED PUT" to being the furnace that burns investors in aggressive growth strategies. Where does that leave real estate?  A falling stock market and disenchantment with investing during the 70's led those left with cash using real estate as an investment alternative.  The money from the stock portfolio goes into a newer or bigger home, remodeling the existing home, or buying investment properties.   The future does not change much from the past.  Don't expect it to.  As Yogi Berra once said "it's deja vu all over ag

 Real Estate keeps flying off the shelves like at a discount market with bonus points.  You don't need to give away Green Stamps to sell in this real estate market.  California, our area especially, has the most $1 million home sales in America.  Even lowly Dead Wood City (Redwood City) has gone into the top with homes selling at $2000 per square foot.  Does this end or do we still buy. First of all, you are not buying Meta or any one of the other FAANG stocks.   You are buying a home to live in. I finished speaking a friend who I have known for over 40 + years and lives and works in Lake Tahoe.  We spoke about housing prices and interest rates.  He remembered when he bought his home in Zephyr Cove and paying 12.5% mortgage rate, and felt he had a deal.  I recalled that we bought some few months before his purchase in Cow Hollow San Francisco and paid 14.5% for our mortgage.  We too felt we had a deal and loved our 1904 Edwardian.  So what's the difference between double digit

 There have been 17 Inflation Periods since the 1970's when interest rates were increased by the FED. to combat inflation  All but THREE led to a Recession.  From a statistical and probabilities standpoint the bet is on RECESSION! That is a tough pill to swallow as we are just getting out of the Pandemic era, still facing continued reinfection by various variants of Covid. The FED is ramping up rate increases and the reduction of their $9 T bond portfolio.  The first to go in the bond portfolio is the MBS, mortgage backed securities, sector.  There are ample buyers in the banks.  It appears their portfolio composition are light in this sector.   At a present mortgage rate of 4.75% and the historic average maturity of a mortgage in the MBS portfolio is 7-10 years.  To a bank, as an investor, 4.75% is far better than the 2.8% on present 10-year T-Bonds.  That indicates that there will be a faster redemption within the bond portfolio.  Further indicating that banks believe that home s

 From what I read and listen to on Podcasts, You Tube and the like; there is a majority of opinion of a CRASH.  A CRASH is expected, it is not a Black Swan.  What makes a Black Swan is the unexpected happens.  In the case of a Crash not occurring but a revival and continued economic growth, that unexpected is called a White Swan.  A good event that is prosperous.  Instead of a Crash we have a continued upward movement in the economy.  The Silver lining that is not being considered is the expansion is wages or earnings.  The increase in earnings can offset the inflationary pressures.  Higher oil prices do not necessarily mean it will affect all.  Cars are more economical,  more cars are EV or a combination thereof than in the past.  People have public transportation and car pools.  All are coming back to work in offices and the cities as the Pandemic is gone and the variants are more a severe cold.   The commodity prices of Wheat, Corn, Soybeans and meat products which are created from

 It is hard for me to believe that the Stock Market's volatility and the upward pressure on inflation from the Ukrainian situation will not affect home prices. Saturday, March 5th weekend Wall Street Journal had some sobering comments on source of funds that support our housing market.  $1.17 billion in Initial Public Offerings have been pulled from market issuance in February.  IPO's, as they are referred to, have been a source of funds that have fueled our real estate market all through the  stock "Bull Market".  Now the stock market is officially in a "Bear Market" there is a question on how much exuberance will continue to carry over into buying frenzy.  I still do not believe that our real estate market is on the verge or even near the end.  At most, the market should settle down to an even buyer and seller situation of equal representation.  I have already seen so in some recent price cuts.  $110 million listing in Woodside has been cut $26 million in

" Breaking Up is Hard To Do", a 60's, or so, song from Neil Sadaka is a song for our era.  Just like our first love, things were going so smooth and then BANG.  What happened, everything was going so well?  Interest rates were declining, stocks were alway going up and every dip we bought more, home values kept moving up, we made unbelievable money with a thing called Crypto.  Then all of a sudden we had Covid, things came back and went higher, people shifted home searches away to areas were they could work remotely and have a better lifestyle at a lower cost of living. A buyer prospect backed away from a purchase  recently, he lost over a $million in Crypto....he is sick.  The happy smiling guy is gone.  FAANG Stocks are down so much people hate looking at their statement on line.  Yet....home prices keep going up.  Los Altos Hills is up 37% in the month of January and the entry home there is $4+ million. Yahoo Finance says..." How will the economy and markets handle

 Zillow spent last year aggressively expanding a home-flipping operation designed to make the $2 trillion U.S. Real Estate Market better for consumers, until a bad bet on home prices shut it down. To sell the thousands of homes a little known truth about the business, called "iBuying" popped up.  "Institutional Buyers" were the biggest names in global finance. Bloomberg News analysts came up with more than 100,000 property records show that Zillow and the other buyers, Opendoor and Offerpad were selling thousand of homes to the new landlords on the block: KKR, Cerebus, Blackstone and many other large hedge funds and institutions.  Those properties were never listed.  That caused the squeezing out of average buyers in the competitive housing market. Two out of 10 homes on average in the US went to iBuyers, double that in Sun Belt and Metropolitan areas and EVEN GREATER in communities of color! A diverse range of political voices from the Biden Administration to Conse