Good morning to Springtime rains;
Residential Lending
Spring the best time to prepare for tomorrow, today.
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A headline to be appreciated: Home Is an Emotional Choice Bound by a Cold Realty. Our first step is to grasp the general numbers & data – Cold Reality. This will help you determine the best homes available – both emotionally and financially. This helpful, as one discusses: What neighborhood, what amenities, and what needs. Interesting, this method of analysis, works for both Home Ownership or investment property.
Often you will discover each of our letters tend to build upon the last letter. The Important Points of today’s residential letter will put some extra emphasis on investment activity.
Important Points:
1) Interest Rates: As a new Presidency begins, rates will likely continue high – for a while. The Fed will carefully review any changes and how they might affect monetary policy. They will watch employment levels, strength of the economy, net wage growth, deficit spending, and all potential drivers of inflation. This uncertainty often results in initial higher interest rates.
Thus, future rate changes will be slower in coming – the when and the how much. Higher rates do help strengthened the US dollar, especially with a slower EU economy. Key: Rate dips have been fairly short lived. For you, the means “early preparation. Key is your readiness to act.
Best advice: Make this month your month to prepare. Call. Let our conversation begin.
2) Economy:
A) Economic Activity: A bit cooler than 3rd Quarter, yet initial number for Q4 is 2.3%.
B) Employment: QCEW report for 3rd Q 2024 is due the middle of this month – final revision released in early March. Past reports show the BLS monthly job increases to be “2X” of reality. This number is supportive of a 1 – 2 % inflation run rate.
Another piece of concern: The Revised ‘birth / death modeling’. The number is estimated and applied to monthly jobs data. Second quartet ‘B/D model’ estimated a “Plus” 653,000 jobs created. Then the real numbers released shows a “Loss” of 163,000 jobs. A swing of 800,000 jobs. This supports our concerns from a year ago. This alone would have cut the BLS job gains in half. Such error makes our work strategizing and planning challenging, especially for a market based upon anticipation and expectations.
3) Jobs Numbers: Interesting jobs report, last Friday: 1) Unemployment rate dropping to 4 %, bit of a bump up in wages, and a bit of a drop in average weekly earnings. Doing the math: Technical loss of 1 M jobs – based upon weekly “gross income”. Media was making bubbly noises and blowing kisses over the UE drop and increase in wages, not seeing the overall effect. For some, history says, “continue with caution.”
4) Residential Real Estate: The bet: Prices will keep going up.
Housing for 2025? Here’s the back story. Over 1 M SFR’s were completed in 2022 and 2023. Year 2024, looks similar. For 2025, “permits” show a potential for 500,000 multi-family units and 1 M homes. Good numbers!
The worry: Actual “starts”. They are a different story. Multi-family is off 27 %, down to an annualized 300,000, while single-family is off 10 %. Annualize, it is holding for 1M homes to be to be delivered. The problem? Demand outpacing supply. New household demand running at an annual pace of 1.9 M new households created.
Bottom Line: Enjoy today’s flat market – “rents and real estate prices” – while they last. Supply vs Demand pricing always win the race.
4) Commercial Real Estate: Due diligence and detailed planning continues to be critical. It’s why we specialize on retail centers for finance and re-financing. It matters. Our developed expertise in this market helps us close loans on most types of commercial financing. Call!
5) Inflation Perspective: Stubbornly stable reflecting failed political promises. Yet some headway is on the horizon. Watch carefully & don’t over react, is todays‘ thought.
Latest Core PCE is 2.8 %. Shelter is the big lagging data point. Further, 3-month run rate is 2.1 % and 6-month is 2.3 %. The 3 and 6 month run rates number is considered by the Federal Reserve. Yet It is not enough for them to lower the Fed Funds rate. Wage pressure inflation is staying muted with the latest reading sub 4 %. Good news: Wages still growing faster than cost.
Add to this: Labor Productivity. Aggregate labor productivity is running above its pre-2020 trend. Interestingly, it has been running hot and above the historical trend since CoVid. Note: Chicago Fed offers, “shift in economic activity – away from in-person services during the pandemic – has had a limited impact on aggregate productivity. This shift, slightly alleviated any long-run drag on overall productivity. This due to structural change in the economy.”
Good News:
Conversations concerning immigration is complex. One is the H2-B visa program. It allows for ‘qualified’ people to extend “qualifying” employment, in pre-defined increments – up to 1 year each. A new, valid temporary labor certification must accompany each extension. The maximum stay for a H-2B classification, is 3 years. H2B also allows for a green card application.
Last year, the number of H2B visas was doubled. This seems an area where legal immigration will help the US match its needs. This process if for agricultural workers and when needed, construction.
Many commercial beekeeping outfits utilize the H-2B program. This is one small area with not enough US residents seeking employment, or having the knowledge to work. Quick Note: Numbers speak, and facts remain. To grow an economy: Increase productivity, plus new population. Just saying.
My Perspective:
“The time of maximum pessimism is the best time to buy, and the time of
maximum optimism is the best time to sell.” – Sir John Templeton
Helpful to understand: When rates are higher, there is more pessimism and less competition. Further, during this specific time of year, one typically finds even few buyers, and lower home prices. Templeton suggests that this is a good time, to find an even better deal, on property.
In this buying environment, when interest rates do begin dropping, there will be a noticeable increase in demand. National Association of Realtors estimate: For every 1% drop in rates, there are five million more eligible buyers. Many new buyers that will tighten available inventory. This will put upward pressures on home prices. Is now a good time to buy? My suggestion: Though high rates, my 35 years as a real estate professional, confirms Templeton.
BIG QUESTION: Buy Now or Wait for Lower Rates
California market: Limited number of homes for sale. Too few, “new” home construction projects. Thus an imbalance in supply, meaning one can anticipate continued property appreciation. Question: Find your dream home. Do you Buy now or wait for lower rates?
Is this your dilemma? Let’s talk before you lose the home and location you desire. Here’s how we can help. We develop a detailed analysis and build a mortgage-options plan for you. We custom fit it for your family finances and show you how to best take advantage of lower mortgage rates, if they occur.
Call today. Let’s take the first step: Analyzing the cost of waiting vs buying your dream, now. Few in the mortgage world are able – or willing – to provide you this helpful analysis. Few will take this extra step. I do, because I care about your today and tomorrow.
Call Today or set a time for our first conversation, using my website. Keep in control !
More Good News – About What we Do!
This month we will spotlight another option to fill our client’s needs. If you have a desire in either a destination place – Emerald Bay, Monterrey, Lake Tahoe, etc. – we can help, or in another major city – Kansas City, Chicago, Miami, Austin – we have you covered. Give a call, let us know your specific need. We are connectors, in addition to being great financial professionals.
“It starts with our first conversation”
Preparing for your tomorrow – today.
With all the financial talk, the most important part is those we have around us. Be well and be safe! Key to life: Enjoy your family and friends, with thankfulness and gratitude.
