McKae Properties Real Estate Market Commentary

Bifurcation in Real Estate: A Market at a Crossroads Bifurcation : A point at which something divides into two branches or parts. Real estate is an asset class , and like all asset classes, it has distinct relationships and subdivisions. Each asset class is bifurcated based on type and composition. In real estate, the two primary bifurcated classes are Commercial and Residential . Historically, the key factor linking these two asset types has been interest rates —which dictate both the cost of housing and the return on housing investments . The Pre-Pandemic Relationship: Interest Rates as the Link Prior to 2020, the residential real estate market followed a predictable formula: The cost of housing was largely determined by the yield curve , a benchmark created by investment banks to measure risk vs. maturity. The risk-free rate of return was set by the Federal Reserve System , influencing mortgage rates. Residential home values followed the classic “3L” principle : Location, Loca...

It will remain to be seen in the upcoming months if the Trump Administration will help the residential housing industry by increasing inventory and improving affordability issues.  The Commercial Real Estate industry appears to rebonding from the depressed levels and excess inventory. Returning back to the work place will put additional pressure on residential housing.  The potential from higher interest rates for a longer period could put pressure on price and more inventory could accumulate.  That would create some respite in prices and help affordability. There may be one pressure point for increased sales of the  Retired  Baby Boomer residentials. INSURANCE, the increases in California insurance is nothing when compared to other states.  The San Jose Mercury News recently had an article on insurance increases in all 50 States.  California has lower percentage increase than Florida and Texas, and lower than most other states, except a few.  Wil...