2024 has started off with a bang with earthquakes and Tsunamis. On the first business day of 2024, the bond market gave back some gains from the last couple weeks and the Stock market was flat but still positive. If the first few days of 2024 are any indication of the year we will be in for some turbulent times. 2024 is also an election year so prepare yourself for a political ride that we have never seen before in history except for possibly in 1861-1865 (the Civil War).
This year will start off with a slow economy, and a slow Real Estate market as interest rates are still too high for the average person to afford to buy a home, especially in California. The Federal Reserve (The Fed) has vowed to lower interest rates if they see the economy start to decline. The Federal Reserve's Chief, Jeremy Powell, stated that there could be 3 times they consider lowering interest rates in 2024. This would be a great thing for Real Estate as more people could afford to buy a home. If the Federal Reserve does lower interest rates and you did buy a house in the last 2.5 years you would have an opportunity to refinance and lower your monthly mortgage payment. If you have a $500,000 mortgage at 7.5% and the rates move down to 6.5% this could save you $336 a month in your mortgage payment and for most families every penny counts in this economy.
Watch the election antics as this will also drive interest rates. If it looks like people will be electing more of the same types of people to Congress and the Senate and the Presidency be prepared for more oddities like we have seen since the current administration has taken office. We the people in the Real Estate and Mortgage industries know what has been done to the Real Estate Market over the last few years due to inflation caused by giving away taxpayer funds to other countries and stimulus checks and the general devaluing of the US Dollar. You will not hear the truth on your TV or radio about what has really happened to the economy, so I am glad you found this article to see what has been done to the Real Estate Industry due to the mismanagement of the monetary system by our government. This election will probably be the most pivotal election of your lifetime to determine the direction of the United States States. I am not going to tell you who to vote for as I still believe people have the right to choose but some don’t as you see playing out in current news.
One giant issue that is failing to make the news that is affecting the dollar is the advent of the BRICS money system which has vowed to take the US dollar out of being the world’s reserve currency. BRICS is Brazil, Russia, India, China, South Africa, and now many other nations have joined this movement powered by China and the Yuan (Chinese money) to become the new world’s reserve currency. This is slowly gaining traction as most countries are tired of Americans running the show and flexing their power all over the globe. The BRICS system is poised to bring the US Petrodollar down which is how all oil has been forced to be purchased over the last almost century. This means that until now all other countries had to convert their currency to the dollar to purchase oil which has made the dollar dominate and has allowed America to thrive over the years. This is also a major reason why our military is in the Middle East currently and could spark World War 3, which is another topic that could have strong implications for the US economy. If the BRICS money takes over as the world's reserve currency the US will be forced to convert the dollar to the Yuan to buy oil which could further devalue the dollar causing even more inflation for the U.S..
This is one reason why with the high interest rates we have seen we have not seen Real Estate values crash as inflation or the devaluing of the US dollar is keeping Real Estate values high. We should also be aware of the debt the country has accumulated as America has over $33 Trillion in debt and until now it has not been a big issue as the US has controlled the world markets, if that changes then the dollar will be further devalued and we will have more inflation and with inflation comes higher interest rates. Some would argue that America just needs to print more money and if that happened it would further devalue the dollar and cause even more inflation and more inflation means higher interest rates. At this point in American economics, we are at a tipping point, and with the current path we seem to be on a collision course with monetary disaster unless we get spending and money giveaways under control, if not we could run into serious economic problems that I don’t want to get into in this piece.
The economy is going to be the biggest issue of 2024 and that will directly affect the Real Estate markets if it is not managed properly. Real Estate values will be in line with inflation this year and interest rates will have little effect on Real Estate values as inflation drives interest rates. Interest rates are the Federal Reserve’s only way to combat inflation. The theory is that as inflation increases the Fed will increase interest rates to slow consumer and business spending and thus slow the demand for goods and services. What is not being addressed is the devaluing of the US dollar by other countries which makes all the goods we get from other countries more expensive, especially oil. To conclude, I believe that 2024 will be a very volatile year for Real Estate and we can pray rates come down enough to get more first-time home buyers into homes.
Well Its that time of year again when the days get a little shorter, there is smoke in the hot air from all dry fires starting all over California. The kiddies are starting a new school year. It is the “dog days of summer” and with everyone changing their attention to things other than Real Estate, we generally get a seasonally adjusted lull in the action. This is all perfectly normal and being in the industry now for over 32 years it is pretty normal. The only other time we have not seen the lull was in 2004, 2005 and 2006 when things were abnormally busy, due to an overheated Real Estate Market. Although the Real Estate Markets have been brisk over the summer it was more of a normal healthy market with move up buyers and first time buyers entering the market. Real Estate Prices rose but only in the price affordability ranges.
So why even write about the Real Estate Market you ask? Well as a business owner and an economist I like to share the trends that I see developing so my readers can be informed in their investment approaches. This is the time of year where California starts on fire and I am not referring to the Real Estate market I am literally talking about wild fires. In late August, September and October we generally have not seen any significant rain fall since May, which causes dry tinder conditions perfect for wild fires. This However, can’t be said for other parts of the country that have had record rainfall and severe flooding. I am sure California Fire fighters would love to have just one day of significant rainfall to help knock down our fires. If you have followed Real Estate trends for any length of time you will know that it is very cyclical and predictable if you know the signs to look for. Folks looking to move to California may take a step back during this time of year as they may think the whole state in on fire per the wonderful media that reports on all the fires. The truth is, although there are several fire throughout the state and the smoke can be seen throughout the state, on a percentage basis is is only a very small percent of the state that is affected by the fires (less than one percent). I can’t talk to the flooding in Louisiana but my guess is that there are parts severely affected and other untouched we just hear the bad.
Anyway, you ask what is ahead in the Real Estate markets in California for the rest of the year? I am here to tell you that whether you are a buyer or a seller of Real Estate that you will be able to find great deals if you are a buyer and sellers will be able to sell at prices that will stay steady through the end of the year. However, if you are buyer you might notice fewer homes hitting the market this time of year as most people don’t like to move when their children are starting school and they generally don’t like to move over the holidays. What this creates is slow down in supply of houses hitting the market. In economics, if the demand for housing exceeds the supply of housing prices will go up. Conversely, if the Supply exceeds the Demand then prices will go down. So, although we see less sellers putting their homes on the market, this time of year, we also see the demand to purchase taper off as well. So with both demand and supply tapering off till the end of the year there are still great opportunities out there for both buyers and sellers.
Interest rates will stay low through the end of the year as well. How do I know this you ask? From an economic point of view, you have to know what drives interest up. Interest rates will be driven up if we start to see inflation. Inflation is where prices of goods and services are increasing. We are currently at about a 2% or less inflation rate annually, which is lower than what would be considered a “normal” inflation rate. We can predict inflation rising by watching personal income levels and employment rates, as the more money people make the more they tend to spend which would raise inflation and thus interest rates. So I don’t see any great increases in personal income from now until the end of the year thus a steady inflation rate and thus no interest rate increases.
What will the election in November do to the economy? Well, again if you know economics, there are what are called time lags that occur when something major happens in the economy like an election. So no matter who is the next leader of the free world it will not affect housing at all this year. In fact, I don’t see any major changes occurring at the earliest the second half of next year. The markets will need that amount of time to see what the new administration is up to. What I am focusing on is the new laws from this administration that have choked down the ability for people to qualify to buy homes. These last 8 years have been the toughest 8 years in Real Estate in the history of Real Estate and Finance and Government intervention. Over the last 8 years we have seen the implementation of the Consumer Finance Protection Bureau (CFPB) and the re-writing of the all the lending laws that were in existence prior to 2008. We have seen Loan officer Licensing across the country. We have seen the regulation of underwriting standards when a person qualifies for a loan. We have seen the CFPB put fear into lenders of being fined so they don’t take any risks in underwriting loans. We have seen predatory attorneys taking advantage of people that feel they have been wronged by a lender simply because they can’t make their mortgage payment. In the past, the free markets were left to weeding out bad lenders and bad loans as those bad lenders writing bad loans would end up bankrupt and out of business. In 2008 we saw our government “bailout” those bad lenders deeming them “too big to fail” thus a new world of banking has emerged. Today we see those same Banks that were deemed “to big to fail” ruling the banking industry and with their profits sky rocking they have been able to buy their own legislation to carve them out as “to big to be regulated”. I could go on and on with the negative effects of Government intervention in a free market economy but that will be for another article. We just need to be diligent as voters and recognize that a bigger Government gives the people less freedoms. So Real Estate will continue steady until the end of this year but what happens next will be up to all of you to do your research and educate yourselves. I will not tell you who you should vote for if you value Real Estate Investing or if you are going to be in the market to buy or sell your home in the next 4 years you need to educate yourself on the market facts. As a voter don’t be fooled by all the social noise you hear in the media, you need to educate yourselves on the benefits of a free market economy and the problems that a free economy faces when Government intervenes. I wish all well and if you need help with your Real Estate endeavors I hope you remember us here a MAE Capital Real Estate and Loan as we would love the opportunity to work with you for either you Real Estate buying or selling needs in Northern California and or you lending need or both.
Is it time to buy Real Estate? Is it time to invest in Notes? These questions face investors every day. With the Stock Markets hitting all-time highs you might be asking yourself if you should take your money out of those markets and buy real estate or focus your new investments in Real Estate and Real Estate related investments. Great questions, so let’s explore what is going on to drive the Real Estate Markets upward over the next few years in California, and might just be the case for the entire Nation.
Basic economic theory states that where there is a shortage of supply prices will go up. So the question of supply in the Real Estate Markets comes to question here. The supply of Real Estate is actually a ridiculous concept as there has always been a limited supply of Real Estate, as last I checked the world is not adding any new land. That being said, we already know there is a limited supply of Real Estate and we also know that our population keeps growing, and the housing markets have to keep up with that demand. Problem has always been to keep up with that demand and not over building while attempting to keep pace with demand.
In 2005 we hit record highs in building new housing and commercial space. It has taken until now to actually have demand catch supply in housing. In economics we call this the equilibrium point. Have we reached this equilibrium point or is it just a moving target. As we know economics is very fluid and has several factors that affect the theory. In housing there are far more factors that actually effect housing, such as jobs in the area, demographics, or the age of the population. As an example of how jobs affect the Real Estate Market, take a look at the Silicon Valley in the San Francisco Bay area. Here there are a limited supply of housing and high paying tech jobs in a concentrated area. People tend to want to stay within a 20 mile radius of their jobs. Thus, you have a limited supply of homes with a high demand for them with people making a higher than normal income. The average price of a single family home in this region is over $900,000. Prices in this region of California are so high that a worker with a normal paying job just can’t get in to the buying market in this area. If you take this micro economy model and apply the basic theory to any Real Estate area you will be able to see what areas are poised to see increases in Real Estate Values.
Although, this sounds easy, people have been trying to do this with accuracy for decades. We also have to take demographics into the big picture. Yes, that age groups that are buying Real Estate and what has traditionally been their trends. Traditionally, the average age of the first time home buyers have been in their mid-twenties, and we have seen this pretty consistently for the last 70 decades. However, this trend has been bucked in last decade. Yes, the traditional 20 something’s buying their first home has actually moved to the early thirties. This is due largely to the economic rescission that started in 2005 through 2011. When a formative child or teen see their parents go through the Real Estate hangover, or failure, they tend to stay away from what hurt their parents. Another huge reason the 20 something’s have not entered the Real Estate Market has been the lack of good paying jobs. The government has been telling us that the unemployment number has been declining, but what they have neglected to tell us is, the jobs created have only been in the low paying areas. If you have low paying job that maybe you had to take to get started or survive with, those jobs don’t qualify you to buy a home but the unemployment numbers go down. The number of better paying jobs has increased over the last few years allowing for more people to consider buying a home.
Now that your economic lesson is over we can apply what you have learned to the Real Estate Markets. We now know that supply and demand affect the Real Estate Markets, and that good paying jobs or the lack of good paying jobs in a specific area will also affect the Real Estate Market. We know that a certain group of traditional home buyers have stayed away from buying Real Estate longer than normal trends have been. So what does all this mean and how do you apply this to your Real Estate Investing plan? It means that we are starting to see those millennials enter the market several years later than they usually did and we also see that the next generation is right on their heels to buy at the same time. We also know that new house building has not been active since 2005 due to the lack of demand from the recession. We know that it will take time for builders to start building again as the demand heats up. We know the job market is regional and some urban areas have better jobs than others with different pay scales in California.
Looking at California there are areas that are more affordable areas than others due to these factors, but what areas are the best for investors? A first time home buyer will buy in the area in which there income is produced in. A Real Estate investor has to evaluate what their overall plan is, such as flipping, holding and creating rental income, or investing in Notes in a specific area. The affordability has to be taken into consideration as well. We know that places with high demand such as the Silicon Valley, and certain Beach communities in Southern California will always have a high demand. These high demand areas are not really that good for investors as there is a high cost to enter those markets and they are not as liquid as they should be for an investor. Most investors are looking for returns that will can be consistent and fairly liquid. That being said, a stable job area is always a good for investors to be looking in. Areas like Sacramento and surrounding communities have a high government job market which creates a stable job market. Regions like the Los Angeles area have the entertainment industry, as well as a good mix of financial and manufacturing type jobs.
Overall California has a good job market and is poised for growth. The most affordable housing markets in California are located in the Central Valley, From Sacramento on the Northern end to Bakersfield on the Southern end of the Central Valley. As we see more folks hitting the Real Estate Markets we are going to see supply of homes for sale dwindle and that will send prices rising again. This makes now the best time to invest and hold in Real Estate that we have seen in over a decade. Builders will start to enter the market but will not be able to keep up with demand for a year or two, keeping prices rising. Knowing that builders were heavily hit by the last Real Estate Bubble, they will be hard pressed to build as fast as they did in the past, keeping supply limited during this new business cycle and prices up. So all in all Real Estate Investors should be looking to invest now either in the Real Estate itself or by investing in Notes. Notes are a great investment as you can get high yields with very low risk with rising Real Estate Values. As Real Estate rises in value people are far less likely to let their house go to foreclosure, making investing in Real Estate a far safer risk than before. At MAE Capital Real Estate and Loan we look forward to helping you with your Real Estate needs from buying and selling Real Estate to investing in private notes. We look forward to assisting you with all of your Real estate needs.