Your Federal government hates you

For a video version of this, click here: https://youtu.be/fWNeMeOwOQ0

Somewhere, in accordance with the fears of our founding fathers, the federal government morphed from servicing the country to servicing their own personal and financial needs. While this transition was often hard to see, now we have government officials saying this almost out loud, and it is clear in the real estate industry.

Why do I say that? And what can you do about it?

Before we get into that, however, let's review where the market is to take their comments in context.

I maintain there are 2 most critical statistics to understand the real estate market. On the buyer demand side, the interest rates. And on the seller or supply side, the months of homes available for sale, or inventory.

So, on the buyer demand side, mortgage rates jumped this week from barely over 7% to 7.30% in response to a "stronger than expected" economy. We'll discuss that. It is still in the range of where rates have been for the past year or so, but may be a sign of worsening times going forward.

Inventory continues to track about the same as last year, slightly higher, which was a record low for a year other than during the pandemic.. As I have repeatedly said, as long as inventory is low, prices cannot go down much.

Locally, in Los Angeles, the market slightly increased its status as a seller's market by rising from a 40 to a 41. It has been in this range for the last year, and this data does trail the most recent jump in rates, so it is not clear how important the direction of this is.

So, in this week's survey of real estate news headlines, lots of fun stuff!

In a rare display of informative and helpful articles, Kiplinger.com has an article on the value of estate planning, "Six Benefits of Setting Up a Trust for Your Assets."

I will note that the photo that accompanies the article shows an elderly couple (I can say that, they are my age), but in reality anyone who has a family and/or own a home should evaluate the benefits of a trust to protect both their assets and their loved ones. I host a weekly Podcast Weekly on that subject. See www.ProbateWeekly.com

You will notice that the corporate media and government entities have declared war on real estate agent, but it is still subtle. One of the standard ways to undermine agents with no real value is Yahoo! Finance's offering "How To Sell Your Home Without a Real Estate Agent (and Save Money)."

The author, Josephine Nesbit, is a general writer on the subject, with apparently no background in economics or statistics. Why is that important? Well, there is no mystery on how to sell a home without a real estate agent, the trick is to do it and save money. And while she does the former, she does not even pretend to address the latter. Her article lists the things the seller would do, those items that an agent normally does: set the price, prepare the home for sale, list and market the home, response to buyer, and negotiate. Then she advises that you need to hire a real estate attorney to help with the paperwork, with no indication of what that costs. But most importantly, she offers no explanation as to whether after all that work the seller will get the same price they otherwise would, or buyers would look to pocket the discount themselves as they know the seller is saving money on the agent and the seller end up with less. In my experience, often sellers merely take the 1st offer they get from an aggressive investor and the property sells for less than the net price an agent would obtain. That's why, as she documents, 93% of homes are sold with agents. Finally, I love how the sellers are putting up the sold sign and both smiling, as this is when the property is in escrow? Let's see if they are smiling at the end.

Redfin continues to dump on real estate agents with their recent "study" that concluded "Over One-Quarter of Recent Homebuyers Have No Idea How Much Their Agent Was Paid."

First, I am not sure why a buyer would or should know how much the seller is paying the listing agent, is that a problem? Second, buyers have the rigtht to ask their agent what the commission they are receiving and how they are paid, in fact we have forms that spell that out specifically. Now, after completing these forms, is it true that still 28% of buyers do not remember what they agreed to? Of course, but more importantly, does it matter? Since the commission the buyer is paying is built into the sales price, they negotiated the best price they could. Do car buyers know how much commission sales people on the lot get paid? When you buy a cell phone do you know how much the salesperson gets paid? It seems like an attempt to create a villain where one does not exist.

The commissions are interesting considering that the use of real estate agents is, despite 40 years of internet attacks and billions of dollars from Zillow and OpenDoor, over 89% of transaction still use real estate agents. (Data from Mike DelPrete).

In the news, loan modifications are increasingly discussed as the economy is challenging for some and higher rates and preventing a simple refinance as an option. Is a loan modification a viable alternative for someone behind on payments?

In my experience, loan modifications almost never work out for the borrower. The bank gets to move the loan into a performing status so they can foreclose when its more convenient for the bank. The borrower, however, gives up rights that they often regret. In the best of circumstances, the loan is extended out to a longer term, limiting the paydown of principal. More importantly, I have never had a borrower properly explain to me the benefits of their loan modification other than they delayed foreclosure.

In the most ironic news of the week, the Director of the homeless organization The Center in Hollywood, an organization with a budget of over $5 million, has moved out of California in response to his facing eviction for the 2nd time.

He wrote an Op Ed in the Los Angeles Times in November outlining how so many of his friends are fleeing the state, and that the cost of living here is too high for him even with a salary of $96,000.

The theme this week is the that YOUR federal government hates you. I know, that is a bold statement, but let me point out what they are saying about you.

NPR, which is literally the broadcasting arm of the federal government, recently ran a story "Many FBI agents are struggling to make ends meet. Housing costs are to blame."

So here is one division of the federal government, NPR, the broadcasting arm, complaining that another arm, the FBI, cannot afford to buy homes. Getting salary information on the FBI is a state secret when compared to the private sector, but best I can tell is that while the starting salary for an agent may be $87,000 after a few years the salary is typically over $130,000. And that does not include benefits of government jobs, like the type of health benefits and pension benefits that have bankrupted most large corporations and may be in the process of bankrupting our federal government.

You should have even less sympathy for this agency when you see that the agency chose the Washington DC metro area for its new $3.5 billion headquarters, instead of a more reasonable housing market. In a classsic governmental employee strategy, focus the jobs in high cost areas, complain about the cost of housing, base pensions on the final salary, then employees can sell their inflated homes and their inflated pension benefits and more to more cost effective markets. All paid for by us tax payers.

Another section of the federal government that hates you is the Federal Reserve. The Fed, which is meant to be the nation's banking system, has become a jobs fair for the politically connected. This week's headline is from the President of the Atlanta Fed, "Housing is unaffordable for too many Americans, and stricter regulations mean higher costs."

Just to point out the obvious, when you are a federal government organization and you have not 1 but 12 Presidents, it shows you that the leadership's egos's are way ahead of their focus on doing their job. In this case, the Atlanta Fed is remarketing that housing is expensive as if it is some sort of unknown disease? How did housing prices go up relative to dollars? If the housing prices went up, did the dollar's value also go down? Hmmm.

In fact, the purpose of the Fed is to maintain a stable money supply, but the 12 Districts and their 12 Presidents enjoy playing politics, so instead of fighting inflation, they are focused on their individual political goals and the result is, amongst others, housing prices are higher than most Americans can afford.

In a weird twist, these political hacks have made what is good for Americans the bad thing. See MarketWatch's reporting on the recent jump in rates, what is the cause they report?

So the cause of inflation (the bad thing) is "stronger than expected economic data relating to the labor market." Meaning, since, in the judgement of the Fed, too many Americans kept their jobs and got paid too much, interest rates have to go up. If only more Americans agreed to get fired and stopped asking for raises. What we have done is allow our political class to ignore their job, which is to help Americans propsper!!!!

In my latest podcast Real Estate Rip-offs, I take our governor Newsom to task for his career of failure and misspending. Recently his announced budget was calculated by the state office to add another $79 billion in debt to our state. Rather than just complain about things in California, I am using this report to announce my support of the latest attempt to recall Governor Newsom, the 2nd such recall attempt I am not sure what else I can do to take action to attempt to turn California around, but I think the only place to start is to hold the head accountable, and despite the last recall failing, I believe a fair and open campaign will result in positive changes for our state, if not removing this politician that has worked to make our state worse.

If you are interested, email or text me, or go to www.Rescuecalifornia.org and download your own petition and let's get this done.

So, what should YOU do?

If you are looking to buy a home and live there for a while, real estate has always been a great long-term builder of wealth and there is nothing to suggest that is changing if you can afford the home.

If you want to move or downsize, it's still a great market to sell, but a bit more challenging than in the last few years.

Finally, if you can find a property that will give you cash flow, this is a great time to get solid cash flow and enjoy the tax benefits of real estate.

How can I help you? Call, text, or email me.

Bill

Bill Gross

Broker Associate, BRE 01022275

Certified Probate Expert

Direct: 310-210-0008 , [email protected]