Fed Chair Does it Again

It is becoming like a broken record. For the 17th straight Fed meeting the committee has voted unanimously to raise the overnight rates another quarter point. This raise has been priced into the stock and bond markets for some time now so it was not a surprise. The good news is that the language used to describe the current state of the economy was measured and responsible perhaps signaling the light at the end of the tightening tunnel. Upon announcement of the Fed's assessment of potential future activity, the Dow, already trading up around 80 points on the day rallied, adding about 60 pts within minutes. As the afternoon has gone on, not only has the Dow solidified those gains, it's added to them up over 200 points now as we near the close of the trading session. Likewise the NASDAQ composite is up around 3% and the S&P up over 2%. Up even more are the international indexes that have taken tremendous blows during this past quarter.

So what you say, the stock market is up, what about real estate. This is a real estate blog and Quintessential Realty is a real estate firm right? The upshot is that the investment pool is basically a zero-sum game. With the market likely rebounding, money will increasingly flow into equities and that money has to come from somewhere. Even fixed-income investments are improving with the rising interest rates. Where is that money going to come from? Real estate could be a logical place that some investors take a little money off the table. Buy low and sell high as the old adage says could have some truth to it in today's real estate market. But will it lead to the bubble burst that some predict?

At least I for one don't think so. There are distinct advantages to real estate investing like leverage, depreciation, and write-offs. Yes you can trade on margin and yes you can purchase option contracts, but you simply can't get the same low downpayment you can in real estate. Remember, if a property you purchase only goes up 3-4% per year, which is the estimates of many economists for the next couple of years, in three years that's over 10% and if you only put 10% down, you've doubled your money. Try doing that in the stock market (okay so maybe in the go-go internet economy, but those days are long gone). Also try depreciating your shares of Apple or expensing anything related to investing in stocks and you can quickly see why real estate has always been and likely will always be an attractive investment.

But like all things, real estate will move in cycles. And in this current flat trend, we can afford to wait and be a little picky. In fact I encourage it. Buy only when you are ready and when the right opportunity comes along. Quick flipping is likely a thing of the past. Watch the fundamentals, buy good neighborhoods, strong local economies, and good schools and with the right time horizon (real estate is a long-term investment) you won't go wrong.

CAR Legislative Day 2006

Yesterday, one day after our primary elections here in California, I along with about 2000 of my Realtor colleagues assembled in Sacramento to thank our legislators for their support and lobby them on a couple of bills that are of particular importance to the California Associate of Realtors and its members.

A little bit more about the experience later but I want to address Assembly Bill 1169 in a bit more depth first. AB1169 addresses a previous law that first appeared three years ago but sunsetted this year. The first law took tenant notification to move by landlords from the original 30 days out to 60 days. It reverted back to 30 days this January when they were unable to remove the sunset clause from that law. Now another Assemblyman is trying to reinstate that law with a new bill, but only for landlords, whereas tenants still get 30 days. Naturally CAR is against this bill as it will make it more difficult to remove problem tenants if the notification period is extended. This law is designed to protect good tenants and addresses other perhaps real concerns for those like Seniors, who may be incapable of moving quickly. However, truth is, landlords don't remove good tenants so this law is written to protect the very few good tenants from the very few bad landlords. Whereas I believe protecting tenants against bad landlords is a noble and necessary cause, punishing the vast majority of landlords who are good is not the way to go about it so I stand with CAR in opposing this bill.

Now that the politicking is over, the experience of Legislative Day is an interesting one. Though our Legislative teams on the local, state and national levels are always lobbying for causes important to us Realtors, this is the one day a year where we actually get to pitch in. I had the opportunity to meet with the aids for Assemblyman Gene Mullin and State Senator Jackie Speier as well as with Ira Ruskin. Secretary of State Bruce McPherson spoke along with two Assemblymen and the Real Estate Commissioner and I saw State Senator Abel Maldonado walking the halls. Making it an even more chaotic experience was that it was merely one day following the primaries in which Maldonado and Speier failed to win their party's nomination for their statewide elections in November.

It was a nice break from the daily routine and let us Realtors play lobbyists, something that we may or may not necessarily be that good at, but a role that, judging by the fact that we have the largest legislative day in the state, we cherish and hold up as important and essential to our livelihood.

Catching Up With the Market

So it's been several weeks since we've posted anything. My apologies! Part of the time I was away visiting the in-laws in Pittsburgh, PA, a place where I actually do own an investment property (and also where appreciation has not been anywhere near as good as California). The other part of the past few weeks is that things have gotten a bit busier.

The rental market is particularly strong. Of course that's not surprising. With the rising mortgage rates and still ever rising home prices, the combination of the two are starting to price more and more people out of the market. Where do a portion of those turned away from home ownership turn? To rentals. The trickle down effect means that from higher priced rentals down to studio apartments, the demand has held down the vacancy factor and in many cases inflated the rents a bit. Rents had been under pressure the past few years, especially at the higher end as potential renters were doing everything they could to buy.

Most of you are now thinking, so what, the rental market is good, but we want to buy, when are prices coming down? Or it's time to sell, how long will it take and have I lost money not selling last year. These are tough questions to answer and is very situational.

For buyers, I would be most concerned with future valuations, mostly for the next 12 to 24 months. Should something happen to put you in the red, it will happen in the short term. If you have a time horizon five years out or more, you should be fine, probably more than fine. I would say make sure to buy something you can live with for at least that amount of time. Questions that you should ask yourself are will I be getting married, having more children, moving in elderly parents? Basically will anything come in the next few years to substantially change your life and more importantly lifestyle? These life changes will change your housing needs and it will make your life a lot easier if you take those things into account now rather than having to move and taking a loss on the property. Many will bring up the point that if the value of your home falls then so will the rest of the housing market so it's a fairly even trade. But the major challenge becomes if you go in with a small downpayment, you could be out that money and not have enough for that future downpayment .

For sellers, people are still buying. Yes, pending sales are decreasing month-over-month nationally, but prices are not. What this tells me and the rest of the industry is that buyers are getting picker; they are willing to pay top dollar but only for the right property. It's no longer a land grab multiple offer situation. This is the time that Realtors earn their paycheck, reading the market correctly and pricing homes appropriately. Some homes get snapped up quickly while other's sit and languish on the multiple listings services. What causes that to happen? Sellers need to readjust their expectations. Quick sale or high price? Want the bird in hand or can you patiently wait for a bit more? All questions sellers must now answer for themselves.

The summer market should give a boost to activity as more families find it easier to move while their children are out of school. What will be interesting to see is where we will be at this time next year. Winter will likely bring another slow down but how will we come out of that. Only time will tell, stay tuned for the ride.