The Path has more Problems

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new listings for the past 7 days; along with, sold, pending, contingent, list price decreased, canceled, expired and withdrawn.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.  How best to understand the increase is to think about the economics in our situation.

The Media Commentary is now on higher interest rates a Recession and unemployment.  What is unique about this time around is that the inventory is still low and buyers are still active.  This is irrespective on economics.  We have seen a 10% drop in housing prices in the past 12 months.  More of that decline came in March after the FED increased rates by 3/4%.  Commercial properties have been the hardest hit as Virtual work places are more common.  San Francisco is a Ghost Town as compared to the past.  Financial firms which dominated San Francisco were replaced by Technology firms.  Technology firms went Virtual during the Pandemic never to return back to the office.

What is unique about our Silicon Valley Residential Real Estate Market is we are still in a Seller's Market.  Irrespective of the price cuts and sale less than list, buyers are picking up new properties.  Over priced homes languish on the market as they should.  Under priced home are bid up.  Speculators, Fix and Flippers are still active and now looking at listing's to find their next target to update and sell for profits.

In the past Commentaries I stated that the FED was after the Inflation in assets and not necessarily food and goods prices.  When I look at the tech stock prices seeing 60% or more declines all seem to be the norm.  Expansive hiring and real estate purchases or leases have stopped.  Now comes the point that layoffs of the expansive strategies; along with, reducing footprints in real estate to match layoff and virtual employees.

As my Mother once said, "The Road of Life is full of potholes and unexpected delays", so we are here.  We will not know if this is a delay or pothole until it passes.  

What we are in is an Era of Opportunistic Strategies.  Opportunity will come only when we look and have the right agent to direct the search or sell real estate.  Opportunistic Strategies will be in the Depressed Properties Category.  Foreclosures will not be as common as they have been in the past.  Today we will see Estate/Trust Sales, Relocation and Divorce.  The former two will dominate, in my opinion and experience.  

According to the U.S Census report at year end, the State of California had a net movement out of the State of some 340,000 or so.  When one considers the in coming new Californians were dominated by those crossing the border, income and tax revenue must be looked at carefully.  Corporations have moved out, individual of upper incomes have moved out.  That in itself will stop any aggressive pricing and multiple offers.  

Mortgage rates have declined while the talk of another increase in rates by the FED has been dominant. That tells me that the rate increase will be minimum, 1/4%, and that the top of the rate rise is either here or in sight.  I also look at the 10 Year US Treasury bond at 3.42% and a 30-year Mortgage at 6.09-6.15 and see the spread has narrowed.  At one point the spread was 4.00 interest rates and now it is less than 3.00 interest rates. We call that Basis Points.  one basis point is .01 of a percentage point or .0001%

My call is buy a home and negotiate a price that is reasonable based upon must recent sales 30 days is best.

Sellers must become realistic.  The days of over bids are gone.  The days of putting in aggressive pricing is gone.  The day of pricing below last sale is here!

The Problem are the Path: 2023

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 into the US Economy that also found into the World Economy.  The result of which had the creation of large amounts of savings to support the Covid shut down.  Money has an unusual affect on people.  When one has more than normal there is a tendency to become frivolous in spending.  The result was assets of all sorts became demand items as saving rate of return plummeted to zero or near zero. 

When the shutdown was relaxed and we could once again could travel and go out to dinner and entertainment.  A shortage  of employees occurred and prices increased as the supply could not keep up with demand.  In addition to product and services, investments went to historically unsustainable multiples.  Investments were created that really, in my opinion, had no substance to them.  The result was when interest rates began to rise in large multiples the optimism and aggressive buying came to a halt.  

Risk Free Rate of Return went from Zero or near Zero to 3-4% or more.  the result was that many Stock investors saw the need to "Take Profits".  Then it became the term of Sell, but to Who, and prices came down to levels that the Risk Free Rate of Return did not match up to the potential profits.  Stocks have a tendency to be very volatile.  The Tech Stocks dropped 60-80% so fast it gave investors and owners of stock a severe case of acid indigestion!  That decline does have an impact on our area where many residents are employed by or are dependent on work from employees of High Tech Companies.  The lack of the feeling of wealth has a serious impact on the psyche. 

Real Estate is a different type of asset.  It does not have the volatility of stocks.  It was great fun to talk at neighborhood parties on how the value of one's house has appreciated, but it didn't really make much difference other than it was chit chat not investment talk!  Those who saw prices decline just took their homes off the market and are waiting to see what the future will bring.

Today the values of Silicon Valley Homes have seen some depreciation in value, 9% in past 9 months statistician's tell me.  Homes still sell.  Some with slight discounts and some with no discounts.  Look at the fidelity reports I have added below and you will see most cites have a slight to strong seller's advantage. 

What one does not see with the reports from Fidelity is the term "Concessions".  This is when a home sells, but the buyer asks for concessions to pay list or near list.  Concession usually have to do with repairs or replacements of items from the Disclosure Packet.  These items would be a deck that is rotted and needs replacement, a Termite/Mold report that has a repair list with cost associated with it, appliance(s), as examples.  Whatever the case, the concession and offer go as: offer to pay list subject to repairs completed at the close of escrow by the seller.  The net result is the agent sells the property at list per the records. The result is the owner gets proceeds less the cost or repairs or replacements.  The owner in this example is the responsible agent in the completion of the work, the permits and hiring of contractors.  The buyer gets the home they want at the terms they want without the pain of permits, contractors and inspections.

Atherton

Los Altos

Menlo Park

Palo Alto

Portola Valley

Redwood City

Woodside

Housing Inventory Snapshot				December 31, 2022
	Average List Price	30 Day Trend	Average Sold Price	30 Day Trend	Average DOM: active/sold	30 Day Trend	Number of Active Listings	30 Day Trend
Santa Clara County, CA
Single Family	$1,678,668	+0.97%	$1,586,979	-1.10%	90 / 28	26 / 3	302	-243
Luxury Single Family	$6,554,444	+7.23%	$4,055,346	+1.14%	131 / 40	37 / 18	94	-72
Condo/Townhome	$803,021	-3.64%	$816,322	-2.41%	81 / 32	18 / -4	145	-98
Luxury Condo/Townhome	$1,759,559	+0.38%	$1,642,662	+7.66%	89 / 30	28 / 8	48	-31
San Mateo County, CA
Single Family	$2,050,448	+1.51%	$1,840,367	-1.96%	87 / 32	27 / 10	164	-155
Luxury Single Family	$10,310,065	+8.98%	$6,851,000	-13.15%	165 / 69	49 / 40	52	-51
Condo/Townhome	$793,998	-3.61%	$872,463	+4.61%	131 / 48	37 / 6	78	-44
Luxury Condo/Townhome	$1,762,331	-0.13%	$1,719,167	-1.18%	80 / 20	11 / -37	21	-16
Santa Cruz County, CA
Single Family	$1,199,309	-3.98%	$1,168,563	-2.68%	98 / 34	19 / -1	119	-38
Luxury Single Family	$3,768,737	-0.38%	$3,119,211	+12.88%	121 / 36	17 / 22	38	-12
Condo/Townhome	$700,000	+0.58%	$751,237	-9.34%	131 / 34	8 / 19	17	-4
Monterey County, CA
Single Family	$999,545	+1.98%	$843,473	-5.92%	86 / 39	12 / -5	193	-52
Luxury Single Family	$7,413,998	+4.21%	$4,730,301	-46.50%	138 / 51	9 / -54	64	-11
Condo/Townhome	$657,576	-5.06%	$514,636	-17.08%	64 / 30	13 / -3	25	-3
Contra Costa County, CA
Single Family	$799,955	+2.61%	$775,895	-1.64%	72 / 44	14 / 10	422	-300
Luxury Single Family	$2,800,588	+5.28%	$2,111,663	+6.62%	96 / 39	26 / 15	139	-97
Condo/Townhome	$494,120	-6.72%	$487,030	-0.79%	66 / 46	13 / 14	113	-76
Luxury Condo/Townhome	$1,150,104	-9.21%	$1,105,796	-15.38%	68 / 25	25 / 3	35	-24
Alameda County, CA
Single Family	$884,104	-7.97%	$966,237	-6.43%	71 / 34	14 / 4	309	-279
Luxury Single Family	$2,879,763	+3.19%	$1,953,257	-6.98%	90 / 29	23 / 2	108	-87
Condo/Townhome	$623,451	-1.84%	$586,579	-6.10%	70 / 50	8 / 12	140	-122
Luxury Condo/Townhome	$1,232,383	+2.33%	$1,179,144	+8.91%	94 / 40	35 / 18	43	-40

As the forecasts appear to indicate a continue weakness in home prices, it has been a very selective market as the Fidelity Reports will show.  I expect real estate prices will be as selective by area too!.   

Fix and Flippers still are active, they are also under pressure as the homes they are flipping are starter homes subject to loan approval.  The forecasts are for the FED Fund Rate to go to 5% plus.  If so, mortgage will go beyond 7%.

What affect will that have on home prices?  I expect very little in the areas I have selected in the Fidelity Reports.  Cash is King and negotiation will be open, with sellers more interested in moving and willing to negotiate with buyers.

HAPPY NEW!

Harry Potter Christmas Eve: The best Christmas themed Harry Potter music...

Year End Greetings

 When Saul of Tarsus set out on his journey to Damascus the whole known world lay in bondage.  There was one state, and it was Rome.  There was one master for it all, and he was Tiberius Caesar.

Everywhere there was civil order, for the arm of the Roman law was long.  Everywhere there was stability, in government and in society, for the centurions saw that it was so.

But everywhere there was something else, too.  There was oppression for those who were not friends of Tiberius Caesar.  There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or fill the hungry treasury from which divine Caesar gave largess to the people.  There was the impressor to find recruits for the circuses.  There were executioners to quiet those whom the Emperor proscribed.  What was a man for but to serve Caesar?

There was persecution of men who dared think differently, who heard strange voices or read strange manuscripts.  There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage.  And most of all, there was everywhere a contempt for human life.  What, to the strong, was one more man more or less in a crowded world? 

Then, of a sudden, there was a light in the world, and a man from Galilee saying,  Render unto Caesar the things which are Caesar's and unto God the things that are God's.

And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God.  Inasmuch as ye have done it onto one of the least of my brethren, ye have done it unto me.  And he sent this gospel to the Kingdom of Man into the uttermost ends of the earth.

So the light came into the world and the men who lived in darkness were afraid, and they tried to lower the curtain so that man would still believe salvation lay with the leaders.

But it came to pass for a while in divers places that the truth did set man free, although the men in darkness were offended and they tried to put out the light.  The voice said, Haste ye.  Walk while you have the light, less darkness come upon you, for he that walketh in darkness knoweth not whither he goeth.

Along the road to Damascus the light shone brightly.  But afterward Paul of Tarsus too, was sore afraid.  He feared that other Caesars, other prophets, might one day persuade men that man was nothing save a servant unto them, that men might yield up their birthright from God for pottage and walk no more in freedom.

Then might in come to pass that darkness would settle again over the lands and there would be burning of books and men would think only of what they should eat and what they should wear, and would give heed only to new Caesars and to false prophets.  Then might it come to pass that men would not look upward to see winter's star in the East, and once more, there would be no light at all in, the darkness.

And so Paul , the apostle of the Son of Man, spoke unto his brethren, the Galatians, the words he would have us remember afterward in each of the years of his Lord:

Stand fast therefore in the liberty wherewith Christ has made us free and be not entangled again with the yoke of bondage.

Page 1-16 Friday December 24, 2021 Wall Street Journal Opinion , Review & Outlook, editorial written in 1949 by the late Vermont Royster and has been published annually  since.

MERRY CHRISTMAS FROM THE MCKAE PROPERTIES TEAM

The Problems are The Path: Year End Opportunities

It has always been my contention that the end of the year is the best buying opportunities for assets; due to the fact, they are under pressure by year end selling.  Whether it was stocks and bonds, when I was in the Securities Industry, or now in the Real Estate Industry.  

Assets; such as, stocks and real estate are not like a pound of coffee with a set price per pound.  They are open to negotiation.  A set price, an offer price, will be given and  a bid below the set offer could be accepted.  Why, emotions, taxes, leverage or just tired of carrying a position.

Real Estate has gone through a Down Hill Slide this past year and a half.  I saw the potential some time ago when rates went ridiculously low with over $9 trillion added to money supply.  The speculation that occurred was in asset values; along with, the creation of new investments without any reason of fundamental value; other than, demand.  ECON 101 Supply Demand Curve is always in play.  Lack of supply and demand creates higher prices until supply is created. Now if the supply is from a computer formula the supply is unending and can be manipulated.  

This is not the case in fundamental assets.  There are only so many shares outstanding, bonds issued and real estate built, and vacant land is limited to the pure and simple fact that only a volcano can create land.

The Money Supply has shrunk since it hit over $9 Trillion to just below $9 Trillion.  During that time of shrinking slightly, the cost of money, say Mortgage Rates as an example, has gone from under 3% in March to over 7% in November.  Now consider that it has taken 22 years for mortgage rates to decline from over 8% to under 3%, this increase is traumatic!

I have reiterated Elon Musks comment that the FED is after Asset Inflation.  The other inflation we incur is in the supply of goods and services.  If the price of gas is high, then drill and create refiners to supply cheaper sources of fuel.  If the price of meat or grain is high plow more fields and raise more cattle, poultry and meat product sources. 

Now let's look at Real Estate, that is why you are reading this dispatch, blog or newsletter.  Demand for real estate has not diminished!  Yes, prices offered and prices of the end product sale have declined.  Those that have bought in the past year may not be able to sell at the price they bought at.  That has nothing to do with where you live, where you come home to at night and how you raise your family.  The house you own is not a pound of coffee or shares in Sales Force or Meta.

Here is the recent market survey in our area.

Housing Inventory Snapshot				November 30, 2022
	Average List Price	30 Day Trend	Average Sold Price	30 Day Trend	Average DOM: active/sold	30 Day Trend	Number of Active Listings	30 Day Trend
Santa Clara County, CA
Single Family	$1,662,607	-0.03%	$1,604,598	-0.52%	64 / 25	14 / 0	545	-96
Luxury Single Family	$6,112,576	+1.32%	$4,009,515	-5.26%	94 / 22	23 / -7	166	-35
Condo/Townhome	$833,336	+4.03%	$836,513	+4.17%	64 / 36	15 / 10	243	-70
Luxury Condo/Townhome	$1,752,901	+5.17%	$1,525,764	-1.57%	61 / 22	12 / -8	79	-23
San Mateo County, CA
Single Family	$2,020,002	+2.50%	$1,877,099	-1.74%	60 / 23	16 / 0	319	-76
Luxury Single Family	$9,460,324	+12.87%	$7,888,042	+13.79%	116 / 30	25 / -5	103	-28
Condo/Townhome	$823,741	-0.08%	$834,009	-6.90%	94 / 43	18 / 12	122	-18
Luxury Condo/Townhome	$1,764,565	+0.40%	$1,739,770	+7.84%	69 / 57	19 / 26	37	-9
Santa Cruz County, CA
Single Family	$1,248,956	-0.80%	$1,200,800	-3.48%	80 / 35	16 / 5	157	-35
Luxury Single Family	$3,783,000	-2.31%	$2,763,270	-15.85%	104 / 14	7 / -29	50	-9
Condo/Townhome	$695,946	-4.02%	$828,675	+11.44%	123 / 15	21 / -27	21	-9
Monterey County, CA
Single Family	$980,174	+5.14%	$896,542	-1.96%	74 / 43	13 / 15	245	-9
Luxury Single Family	$7,114,145	-1.42%	$8,841,111	N/A	128 / 105	9 / 43	75	-5
Condo/Townhome	$692,621	+3.76%	$620,665	+12.93%	51 / 34	12 / 6	28	-2
Contra Costa County, CA
Single Family	$779,621	-2.46%	$788,829	-0.64%	58 / 35	8 / 1	722	-158
Luxury Single Family	$2,660,086	+0.16%	$1,980,510	-2.37%	70 / 24	16 / -7	236	-53
Condo/Townhome	$529,713	+1.20%	$490,914	-6.58%	53 / 32	8 / 6	189	-34
Luxury Condo/Townhome	$1,266,745	+2.57%	$1,306,849	+16.47%	43 / 22	-2 / -2	59	-11
Alameda County, CA
Single Family	$960,625	-3.76%	$1,032,679	-1.68%	57 / 30	15 / -1	588	-253
Luxury Single Family	$2,790,735	+4.26%	$2,099,827	-4.64%	67 / 27	18 / 2	195	-69
Condo/Townhome	$635,130	+2.94%	$624,694	-0.66%	62 / 38	10 / 3	262	-68
Luxury Condo/Townhome	$1,204,352	+3.53%	$1,082,671	-4.88%	58 / 23	16 / -2	83	-29

Nothing looks horrific, does it?

Fidelity Title gives me a regular analysis of our markets.  Fidelity does have access to the county records and can provide a clear picture of our real estate market's health.

Atherton has a Slight Buyer's Market

Los Altos has a Strong Seller's Market

Menlo Park has a Strong Seller's Market

Palo Alto has a Slight Seller's Market

Portola Valley has a Slight Seller's Advantage

Redwood City is a Strong Sellers Market

Woodside has a Slight Buyer's Advantage

What is this telling you?  It tells me that the price declines are giving opportunity to buyers to buy when price declines occur.  It gives buyers an opportunity to buy without competing offers and the need to over bid.  The Seller's Real Advantage is their property sells.  

The Federal Reserve tells me that the almost $9 Trillion in Money Supply has not been taken away and buyers can afford to buy a home irrespective of interest rates.  It tells me that the layoffs in the Technology Industry are on a wide spread basis over the United States and not localized in the Bay Area.

Could interest rates go higher?  Probably, but I feel we have seen the severity of the increase.  The only adjustments will be minor.  Banks and mortgage companies will go back to the old form of lending.  They will create mortgages that buyers can afford in monthly payments.  The other side is those with cash can adjust their asset allocation from stocks, bonds and esoteric investments that express volatility and doubt of value for real estate which they can touch, feel and live in and off of.  IT IS YOUR REAL ESTATE!

HAPPY HOLIDAYS TO ALL AND TO ALL A GOOD NIGHT!