McKae Properties Real Estate Market Commentary

There is something missing from the "Media" that must be addressed in forecasting Home Prices.  What you and I have either read or seen has dealt with Recession, Bear Market in Stocks and forecasts on the housing market.  All forecasts are based upon history.  History going back before anything a dramatic as what we have experienced in past 2 years. Certainly as Lord Toynbee wrote "History Repeats Itself" there is truth.  History is not alway repetitive in circumstance that eventually lead to a conclusion.  Let us take the Federal Reserve System and the Board of Govenors action to lower interest rates and take on a strategy of using Quantitative Easing.  A never in history event would not result in "History Repeating Itself". In fact it is more of creating a new history.  The back page of the Friday, June24, 2922, Edition of the Wall Street Journal Business & Finance Section points out Americans usually lack something heading "A LOT OF CASH".

 The stock market is definitely in a Bear Market, as defined by a 20% correction from past highs.  Lower lows and lower highs all create for a trend downward.  Interest rates had a big day in the terms of Mortgage Rates this past week.  At one point I saw a 6.4% 30 year mortgage offered.  30-year conventional per the local Mercury News were quoted at 5.9%; which is unique to the 30-year jumbo at 5.44%.  Whatever the rate, they are up substantially from the past week and the month prior and going back to one year ago.  The days of The FED is Your Friend are done.  Easy money and frivolous spending is out.   There are 75 new listings in the past 7 days, up from 63 a week ago.  23 price cuts and fewer sales and closes as the days and weeks prod by.  Agents are sending out emails offering higher commissions to agents representing buyers....as if we are pimps who work for the highest bidder.  Agents who prided themselves on numerous listings now are offering wine and cheese parties to promo

 Real Estate is an Asset Class that represents store of value.  Unlike stocks, bonds, coins, commodities and crypto, real estate offers offers livability.   I have always had issue with the concept of interest rates being used to control the economy and inflation.  It is really nothing more than an adjustment of supply to match demand.  Common sense and affordability will control the rest.  The increase in rates with more to follow will affect real estate prices just as it has stock and bond prices. One in 5 listings in the US has had a price cut.  We have not seen that so far in our area. As I watch the Daily MLS Listings summary for our area, I do see agents offering buyer agents more in commission to motivate their buyers, I do see more yard sales, I do see more open houses.  Sooner or later the trend in the US will follow through to our area. Californication or the movement of Californians flush with cash to parts east to buy has finally slowed down, says Redfin.  Further Redfin st

  The rise in interest rates are beginning to show the economy is slowing down.  Stocks are the most liquid of assets. Stocks and bonds are more immediate in price changes. Real Estate is slower in reaction.  Real Estate must be watched to gather trends. I personally look at the MLS Daily Summary.  It lists all the new listings, pending sales, sales, with drawn, cancelled, expired, sold, and most important back on the market. The MLS Listing  indicates a sellers market as home prices stay relatively firm. Sales occur at over list in most of our markets.  Price cuts are beginning  to mount.  We are still in the active season in the Real Estate market.  Once we get into June and the sales of April and May close escrow, we will see if a slow down in price or listings occur.  It is my observation that the listings are very strong now, I doubt they will slow down.  Why, too much money has been placed in remodeling and updating by contractor, speculators and home owners to want or can pull h

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