American Cash Hoard Could Cushion a Downturn

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".

Consider that the FED unleashed $9 Trillion into the the US economy to stop an economic collapse from the Pandemic, and then to create inflation.  The trouble with considering this large amount of money.  (More money and assets on the FED Balance Sheet were created Historically!) It fed the pockets of everyone from Wall Street to the average American.  

At the end of the first quarter 2022, U.S. Households held $17.9 trillion in cash and cash equivalents.  This was up from $13.7 trillion they held at the end of the first quarter 2020.

Now comes the most interesting statistic.  People in the top 10% held 32% more in cash and cash equivalents, BUT people in the bottom half HELD 45% MORE! It rose for whites, black, hispanics.  It rose for college graduates and high school graduates.  It rose for Millennials, Gen-Xers and Boomers!  In addition; the equity in home values increased at multiple factors, portfolios increased.  The economic wealth of U.S. Households are or have never been better going into a fear of a Recession.

Jobs are still in demand.  Virtual jobs out distant demand in work in location jobs.  The ability of households to find lower cost of living communities allow workers to work were affordable.  Those areas tend to be smaller, safer and have as good as or better schools.

The cost of living by inflationary costs do affect the portion of take home pay that is not spent...SAVINGS.  that portion fell to 4.4% in April.  In pre-pandemic era it was 7.6%.  Even with inflation it will take until the end of 2023 per Barclays Economists to drain off excess cash.  Even so, there is an offset of higher interest rates increases to balances.  

This does not mean consumers will spend willy-nilly.  They have learned just as the Baby Boomers Parent learned from the Depression Era Parents.....They Saved!  

Consumer appetites, in my opinion, have most likely been sated.  All the durable goods have been bought.  Cars will last to at least 200,000 miles.

The type of Belt Tightening that has happened in past Recessions may never happen! That will blunt any Recession or any depth to the economic downturn.  

Then we have "Guns or Butter" in economic spending.  Thank you President Putin.  Guns built and expended need to be replaced.  Oil is needed, drilling must increase.  Nuclear plants need to be built that are far better than any ever produced.  Think this, there is only one producer here in the U.S: GE and Westinghouse, a privately owned company.  Plants are now smaller and more efficient, thanks to Bill Gates Foundation.  Companies are moving back to the U.S.  Finally, as noted prior; Butter are Consumer Durables and they have been purchased

The positive outweigh the negatives.  Housing Prices could see some hesitancy to follow higher.  Buyers could find areas outside the Bay Area that fit their budgets and life style.  Companies could build in less expensive areas and draw employees away from the Bay Area.

Through natural selection home prices for the Bay Area could see reality and more listings will compete for sales, price cuts will become a standard, agents will offer incentives.  Homes not sold will come on the Rental Market and rents will decline.  All sound good for buyers and renters.

Just looking at the MLS Listing Summary for the past 7 days there has been increases in homes listed, prices cut.  Compare the current Summary to last weeks Summary and make your own opinion..,

Market Watch

New Listing (87)
List Price Increased (2)
List Price Decreased (22)
Transaction Fell Through (3)
Listing Back On Market (0)
Contingent (5)
Pending (25)
Changed to Sold (41)
Changed to Rented (0)
Listing Expired (2)
Listing Canceled (15)

Asset price Re-evaluation

 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 promote their listings.  

The premiums of list to sales are also declining as with the days on the market increasing.  This is usual for the summer.  Cancelled, expired and withdrawn listings continue to expand.  This is normal for the June forward period.  There is one area in which sales to list and days on the market continue to maintain strong interest....East Palo Alto.  

Luxury Realtors are now seeking other areas in which the markets remain strong, Redwood City has many agents that once would never take a "Deadwood City" listing are popping up.  Woodside, Los Altos, Palo Alto and Menlo Park seem to find the market more favorable to them in /redwood City.  All a sign of a softening market.

In the Broker Price Opinion work, there continues to be work by "Fix and Flippers" in the East Menlo Park and East Palo Alto area.  Once forgotten rentals that only the destitute would rent are now being stripped remodeled and marketed quickly for reasonable prices.  Alas, Home Depot enhancements, but; never the less, a major improvement form the rat infested former home, where abandoned cars sat in the front yard and weeds grew with abandon.  The neighbors of these new remodels are now seeing pride in ownership and update and work on their landscaping.  A new wave of home ownership is happening.  While cheap interest rates created riskless abandon.  It did help create a new wave of home ownership.

Broker Price Opinion is now spreading from the "Fix and Flip Market" to the luxury high end market as long time owners are now thinking about downsizing.  From Atherton, to Menlo Park Allied Arts, to Los Altos Hills; owners are interested in what their home is worth.  All of this should be good for the inventory market.  Too long home owners and buyers looked at their home as a FAANG stock.  Yes, it is the largest part of an estate, but it is not easily liquidated as shares in common stocks.  

Now what about the stock market?  Did you know that if Exxon Mobil had remain in the Dow Jones Industrial Average and was not replace by Sales Force. The difference would be Exxon up 75% and Sales Force down 75%.  Now look at the other companies that were removed in the hey day of growth and  high technology.   Wall Street has a way with playing with your pocket book.  

My son-in-law says they always come back.  Well youngster you weren't here in the 70's and many never came back!  

Now is this the 70's of Stagflation and recession.  While I read the "experts" tell me that the high interest rates will cause a recession, I still do not see anything else than an asset value re-evaluation.  The change in the use of interest rates, the negative interest rate and the creating of money supply by the FED buying Bonds in the after market has created a large reserve of cash in the populace's savings.  Most average citizens are not big investors.  Yes, they have a 401-K plan and a retirement plan at work; but by-in-large they only play the market.  Once burnt they stay out for a long time.  So, we will see if the Crypto craze vanishes as quickly as it started; along with MEME stocks.

My energy portfolio has done exceptionally well.  The merger acquisition part continues to add profits.  Mergers will continue to be the place to go as equity prices decline.  A company is worth more to an acquirer than that in the public market so just keep your eyes on mergers.  The new place is Biotech.  Forget about the ETFs, Tokens, Index plays and anything else created by a kid from Wharton in the back room of an Investment Bank.

In closing for all of you who have expressed your appreciation in this Newsletter or Blog, send me your referral to ad to the list.  A Referral is your greatest complement.

New Listing (75)
List Price Increased (2)
List Price Decreased (23)
Transaction Fell Through (0)
Listing Back On Market (0)
Contingent (6)
Pending (41)
Changed to Sold (49)
Changed to Rented (0)
Listing Expired (0)
Listing Canceled (10)

Bear Market Rally in stocks, Real Estate Market Softens

 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 states that the FHA buyers are now finding that they are not outbid by All Cash Buyers.  Unfortunately, HFA loans are not dominant in our area.

Further proving the softness is that New Home Sales, nationwide, declined in April 16.6% from March.  Meanwhile the inventory of unsold homes in the US jumped 8% in April to 444,000 a 13-year high.  Now this is not 2008 and home prices are not falling.  The average price of a home in the US ticked up to $450,600, up 45% from 2-years ago.  That number should tell you why Californication is going on when the median price in our area is over $1 million.

BOTTOM LINE:  While the frenzy is over, there is still Pent-up Demand from those who have been searching for the past 2-years.  It looks like we will see a sellers market will remain in our area.  For the frustrated the only recourse is "Go East Young Buyer, Go East"

Stock Market comment:  For those of you who have asked my opinion on various stocks that have "hit the tank" as we use to say when I was a trader and stock broker, we are in a Bear Market Rally..  The FAANG stocks have declined over 20% and some more than 50% to 70%.  This is a transition phase when those FAANG and related growth stock were the dominant investment in a low interest rate market when the FED was the investors friend.  That era has gone.  

Short sellers, or traders who believe their target stock has been over priced, sell to buy back lower at lower prices and borrow stock to deliver to the offset buyer.  Interesting part of this pairing it is really a triad.  The stock that is borrowed is lent from a mutual fund, investment advisor or similar related firm.  When prices decline to a point of being over sold, the short seller buys to cover the short sale. This starts the rally in a Bear Market.  Individual investors or traders sensing a bottom jump on the band wagon and prices escalate quickly.  Then all stop and the funds and investors who missed the initial sell begin to sell positions.  Down it goes.

NO, it will not always go up as it has for the past years.  This is a different phase of a market.  The FED is not a friend. 

Sell your growth stocks and look for high end real estate.  The Luxury Market is strong and there is seldom a Bear Market there!