All about Life & Real Estate in Silicon Valley – Broker Michael Koo's Blog.

Depending on whom you ask, U.S. Treasurys are either headed for a dramatic selloff, or a dynamic rally.

Hedge funds and other speculators have hardly ever been more bearish on Treasurys, according to J.C. Parets, founder of money manager Eagle Bay Capital and a prominent market commentator who contributes to the blog All Star Charts.

At the same time, commercial buyers, a group that includes insurance companies and other institutional investors, who buy futures contracts to hedge their exposure, have never been more bullish, according to weekly positioning data released by the Commodity Futures Trading Commission.

By Joseph Adonilfi @ Market Watch

Last Thursday, Bloomberg reported that the median monthly rent in Manhattan stalled out, falling 1.2 percent in September to hit $3,396. “It was only the second year-over-year decline since February 2014,” the outlet continued, citing a new study from appraisal firm Miller Samuel, and the brokerage Douglas Elliman Real Estate.

That second decline happened in March of this year. It was followed by a peak of 2 percent growth in June, and then rents in the Big Apple slowed again before falling last month. Further signs that the housing market has shifted include the fact that landlords are offering renters more sweeteners, like a month or two free; meanwhile, only 17 percent of all housing sales in Manhattan involved a bidding war this year, down from 31 percent last year.

“The market does not appear to be resuming an upward pattern anytime soon,” Miller Samuel’s president told Bloomberg.

And it’s not just Manhattan or New York. Over the last year, the rate of rent growth has dropped precipitously in Portland, San Francisco, Denver, and Houston as well.

Jeff Spross at the Week.

Like a field judge in the Olympic track and field events, Fed Chairwoman Janet Yellen may use her speech in Jackson Hole to start the race for a rate hike as soon as September.

Yellen will speak Friday from the Fed’s summer retreat at 10 a.m. Eastern. The subject of her remarks is “The Federal Reserve’s Monetary Policy Toolkit.”

“We see Jackson Hole as the ‘ready’ warning and look for Chair Yellen to err on looking at the optimistic side” of the outlook,” said Drew Matus, senior U.S. economist at UBS.

To be fair, Matus thinks the U.S. central bank won’t issue the “set” warning until its September meeting policy statement and then “go” at the December meeting.

But many economists think the central bank could “go” in September if the jobs data is strong.

The Labor Department has reported two strong months of employment gains — 255,000 for July and 292,000 for June.

“If the August employment report, scheduled for release on Sept. 2, is solid, then we expect the Fed to raise rates at its September meeting,” said Michael Gapen, chief U.S. economist at Barclays.

“We expect Yellen to deliver a stronger signal about the likelihood of near-term rate hike” at the Jackson Hole meeting, he added.

When it comes to investing in the stock market, you may lose your shirt, but you probably won’t lose your home. In fact, when the equity market gets rough, real estate tends to be a life raft for investors seeking safety.

“Real estate is Americans’ preferred investment for money that they won’t need for at least 10 years and that hasn’t changed,” said Greg McBride, chief financial analyst with New York-based Bankrate.com. “Nervous investors always look to real estate rather than shy away from it in times of volatility.”

While global uncertainty spreads and stocks fall worldwide in the aftermath of the British referendum to leave the European Union, it doesn’t necessarily mean déjà vu all over again, at least when it comes to a repeat of the real estate plunge of 2007. The crash that began that year accelerated sharply following the 2008 rout of the equities market, when home prices in late 2011 were down more than 20% from their peak in spring of 2007.

“There is a lot of Brexit panic going on,” said Francis Greenburger, chief executive of Time Equities Inc., a real estate development firm in New York. “When you realize that this is going to play out over years, and nothing substantive is going to change in the short term, it seems like an overreaction,” he said.

As a result, here’s why you shouldn’t be panicking post-Brexit if you’re looking to buy or sell a home:

Interest rates should stay low, and could go even lower.

And as markets reel post-Brexit vote, the pace of further Federal Reserve rate increases is likely to slow further, according to Kevin Finkel, senior vice president of Resource America Inc. REXI, -0.10% , a real-estate investment trust in Philadelphia.

“If the Fed had a decision to make to raise interest rates, it gets pushed back further now,” he said. “The slower growth in Europe that Brexit will likely cause and the worldwide global slowdown as a result will force the Feds to drag their feet.”

The Fed was already considering holding off on a summer rate increase when the news was announced earlier this month that the U.S. created just 38,000 new jobs in May and nearly half a million people dropped out of the labor force, raising doubts about the strength of the economy.

“The chances are the Fed is reading the (Brexit) signs as being negative to growth and activity,” said Time Equities’ Greenburger. “As long as inflation remains in check, the Fed is going keep their powder dry and leave rates as they are,” he said.

The 10-year Treasury, which mortgage rates follow, has plunged 20 basis points since the results of the Brexit vote were announced. For someone in the market for a $200,000 home, the pre-vote rate of 3.46% would have cost $715 for a 30-year fixed-rate mortgage with a 20% down payment, according to Zillow’s mortgage group. If mortgage rates fall 20 basis points, that monthly cost would be $697.

Finkel also notes that the uncertainty in Europe will mean the U.S. will continue to be a haven for real estate investors, pushing prices higher. That will help millions of Americans who were unable to refinance because their homes were underwater (meaning they owed more on the home than it was worth). Research firm Black Knight estimates that as many as 7.4 million borrowers could refinance their homes and Brexit could mean even lower interest rates when they do so.

Moreover, as interest rates stay low, the impact of “rate-shock” when short-term adjustable rate mortgages (ARMs) readjust will be minor compared with what happened between 2007 and 2012, when many Americans could no longer afford their new housing payments and defaulted.

One downside to the low interest rates however is that private buyers of mortgage pools, the so-called mortgage-backed securities, are staying away from the market because rates of return are so low. That hurts liquidity and prevents banks from making more loans. As a result, government-sponsored enterprises have to buy up the majority of the loans to create liquidity in the market. According to the Housing Finance Policy Center of the Urban Institute in Washington, D.C., the private label securitization market was valued at $718 billion in 2007 and plunged to just $59 billion in 2008. It was valued at just above $64 billion in 2015.

There’s less risk of a new mortgage bubble

The percentage of loans in foreclosure nationally is the lowest level since April of 2007, according to Black Knight. Foreclosures reached a peak of 4.6% in 2011 at the height of the real estate bust. This year, just 575,000 homes were in active foreclosure in May, down from 800,000 a year ago, a 29% drop, according to Black Knight. While new foreclosures starts last month of 62,100 were up slightly from a 10-year low set in April, they are still 20% lower than a year ago, Black Knight said.

“The recent rise in bank repossessions represents banks flushing out old distress rather than new distress being pushed into the pipeline,” said Daren Blomquist, vice president of Irvine, Calif.- based RealtyTrac, a real-estate research company.

Unlike the 2005 to 2012 mortgage meltdown, when so-called liar loans and exploding ARM’s flooded the market, the subsequent pullback in credit may have been overly tight, but it does mean in 2016 there are fewer real estate bubbles waiting to pop. While it’s true there are markets that have seen incredibly inflated real-estate values such as San Francisco and New York, it’s not fueled by unsustainable and loose credit standards.

“The changes that have taken place over the past five to seven years have built a more stable foundation” in the mortgage industry, said Michael McPartland, a managing director and head of residential real estate for North America at Citigroup’s C, +0.05% private bank. “There just aren’t a lot of the exotic products like interest-only [loans] and super-high loan-to-value [mortgages],” he said. “If things slow down, there will be a contraction, but not a pop.”

McPartland says with slow wage growth and high student loan burdens it may be harder for younger borrowers to afford a 20% down payment and monthly interest payments that are principal and interest, instead of just interest-only, but the flip side is increased home equity, so home buyers are less likely to leave the keys on the counter and walk away if things go bad.

Help for first-time home buyers

In 2014, the Federal Housing Administration began reducing mortgage insurance premiums on loans by an average of $900 a year, in an effort to nudge first-time home buyers and millennial borrowers who might not have much cash for a down payment to finally enter the housing market.

Those other federal moves include Fannie Mae and Freddie Mac making lower down payment loan options available to more borrowers. In 2014, the agencies began to buy loans with just a 3% down payment, or 97% loan-to-value ratio. Fannie Mae also announced in 2015 that it would allow income from a non-borrower household members to be considered as part of a loan applicant’s debt-to-income ratio. That could help some borrowers, who might have family members on Social Security or disability living with them, or a renter in a basement apartment, to boost their income levels and help them qualify for a loan.

Lower oil prices

At the end of 2008, gasoline prices, which had risen to a record $4 a gallon nationwide that summer, had crashed to under $2 a gallon. In that case, the cheap gas (and diesel) wasn’t a good thing, as the worldwide economy was shuddering to a halt.

While the U.S. economy (and world economy) is slowing down, the lowest gas prices since 2009, with the national average now close to $2 a gallon is likely to help the housing market.

“The continuing drop in gas prices is freeing up valuable disposable income,” says Resource America’s Finkel, which can help Americans absorb higher rent payments, or move up to a more expensive property.

Job growth

While jobs typically are a lagging indicator of an economic downturn, the U.S. has had a slow- but- steady rate of job creation for the past five years, though that appears to be tailing off in recent months. The U.S. had been averaging more than 200,000 new jobs a month since 2014 until a recent slowdown since March that’s seen hiring taper off to a 116,000 monthly range.

“The recession risks are elevated, but there’s not an abundance of people seeing one over the hood of the car,” said Mark Hamrick, senior economic analyst at Bankrate.com. Hamrick expects GDP growth to rebound in the second quarter at 2% for the rest of the year, which he said will be enough to support expansion in the housing market.

“I don’t think anybody is looking at the payroll numbers and deciding it’s a bad time to buy a home,” he said.

By Daniel Goldstein at Marketwatch.com

For decades, sales trainers and consultants have preached the gospel of connecting with the prospect and making them feel comfortable with the personal-advisor relationship. Annuity and life-insurance sales gurus encourage agents to sit down at the client’s kitchen table and present the “opportunity” face to face in order to help earn their trust. What a colossal bunch of archaic sales garbage. I guess they want advisers to keep using typewriters and Rolodex cards as well. Give us all a break.

Need a financial friend, buy a dog

I always tell people that if you need a friend in the annuity business, buy a dog and name it “Annuity.” That goes for your stock and bond broker, financial planner, wealth architect, or whatever made-up title your adviser goes by.

The days of an adviser pretending to care about every part of your life is officially over. And if you are under some illusion that this is needed, then you need to re-evaluate the role of your adviser. Do you want your doctor to not tell you that you have cancer? Do you want your adviser to be brutally honest and abrasively factual about your financial situation? Do you want a golfing buddy or someone that can really help you with your financial goals?

You can’t teach height

Both of my parents were basketball coaches when I was growing up, so sports analogies ran rampant through most conversations. My dad’s favorite line on the recruiting trail was “you can’t teach height.” That makes sense when you need to put together a competitive team, and it can also apply to your adviser.

You should care less if that person is likable, attractive, or is offensive at every turn. Like athletes, advisers have to produce. They have to bring value, or the coach can pull that scholarship. Has your adviser put up the stats to stay in your financial game? Have they earned that scholarship for the next year? Numbers don’t lie.

Bedside manner does not matter

I would rather my doctor or surgeon be the biggest jerk on the planet, but have the best skills and knowledge available. Nice doesn’t pay the bills. Being cordial doesn’t solve problems. You want an adviser (and a doctor) who shoots straight and is not afraid to stomp all over your emotions to get you moving in the right direction.

My lovely wife of 28 years makes me send my clients a holiday card every year because she thinks it’s important that they know I’m “human.” Can an airbrushed picture of my wife and two daughters do that? Because my wife is the boss, the cards go out every year even though I think it’s a waste. I don’t want my clients to like me. I want them to like my brutally honest advice. That’s it, and that’s my goal.

Friends can lead to fraud

Most Ponzi schemes and fraudulent financial advice typically falls under the veil of some friend or colleague that somehow won people’s trust. Madoff anyone? If you consider your current adviser a friend, and trust them implicitly, I would advise you to reevaluate that financial apathy you are embracing. You know better.

Hate the person, love the advice

The successful hedge-fund and private-equity gurus have already figured out this whole client-relationship issue. They don’t have any relationship except for portfolio performance. There’s a chance that some of these people are disgusting human beings, but their clients don’t care as long as the return numbers work. As the Los Angeles Drew Basketball League’s motto says, “No Excuse. Just Produce.” You might want to hand your adviser that slogan emblazoned on a T-shirt, and have them live up to that pledge.

‘F’ stands for Fiduciary, not Friend

With the recent Department of Labor’s recent “FiduciaryCare” ruling, “financial friend” is going to be permanently replaced with “financial fiduciary.” That’s a good thing in my opinion, even though the proposed law has some major flaws. At the end of the day, it’s up to you to keep the adviser in your financial lane and not allow them to cross that personal line.

By Marketwatch.com

There’s a paradox in Monday’s existing-home-sales data.

Sales slid 7.1% to the lowest pace since November, the National Association of Realtors said. NAR has warned for many months that low levels of supply, which are pushing prices ever higher, will eventually cripple the market.

February’s decline may be a sign that the Realtors’ fears are coming true, although it may still turn out to be a temporary blip caused by weather, new closing regulations, and the difficulties of adjusting data to account for all those anomalies.

Still, as NAR Chief Economist Lawrence Yun said in a statement, “the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers.”

That may sound obvious: if you can’t afford the few limited options available on the market, you’d probably give up too. It also tracks with a survey NAR published last week, which found that the share of current renters who say now is a good time to buy fell in the most recent quarter.

But it’s worth remembering, as Yun pointed out in a press conference Monday morning, that it wasn’t too long ago that higher prices drew more buyers in, rather than shutting them out.

By Andrea Riquier at Marketwatch.com

It will become more expensive to buy your little piece of heaven this year, as lower-than-ever inventory in the City of the Angels continues to be the big story at the beginning of 2016. And with the lack of inventory in Los Angeles comes the inevitable rise in prices. All-cash offers and bidding wars are still the rule in every sought-after neighborhood and price range, especially if properties are correctly priced.

“L.A.’s housing market, despite becoming more expensive and unaffordable, is not in a bubble,” UCLA economist William Yu wrote. “The current rise in home prices seems to be driven by rising effective demand and limited supply, not by speculation. Therefore, the housing bubble burst we experienced several years ago is unlikely to haunt us this year or next, and the smart money will continue to invest here.”

Check out more Location Scouts reports on housing-market conditions across the U.S.
Moreover, the forecast states that Los Angeles is in the middle of its rebound and can be expected to experience price increases for at least another four years, with values increasing 35%. Obviously the global economy and the current uncertainty about the U.S. elections could play havoc with the predictions, but on the whole, relative to other parts of the country and world, L.A. looks like a pretty darn good investment.

Ed Fitz Market Watch,com

A report from Harvard University recommends the college admissions process should place more emphasis on factors such as good citizenship and contribution to family and deemphasize things like the SAT exam and academic overachievement. Harvard’s Richard Weissbourd explains.

WSJ.com Jan 29 2016

A gauge of pending home sales rose 0.2% in October, following two months of declines. Buyers are struggling with lean inventory that’s driving prices higher, said the National Association of Realtors. Its index of contract signings edged up to 107.7 and stood 3.9% higher compared to a year ago. The index has notched yearly gains for 14 straight months. NAR’s chief economist, Lawrence Yun, said supply isn’t keeping up with strong demand. “Unless sizeable supply gains occur for new and existing homes, prices and rents will continue to exceed wages into next year and hamstring a large pool of potential buyers trying to buy a home,” he said. The pending home sales index tracks real estate transactions in which a contract has been signed but the transaction has not yet closed.

After seven years of being under intensive care, Fed chief Janet Yellen doesn’t believe the U.S. economy is ready to leave the hospital just yet.
That’s why Yellen and her colleagues at the Federal Reserve decided last week to keep its benchmark rates at near 0%.
They might be right. The economy is hardly going gangbusters and there are real threats from China’s slowdown.
But some feel the Fed is coddling the economy by giving it more care than it needs. They argue emergency-level rates and Fed indecision are actually hurting confidence among consumers, investors and CEOs.
That’s why they believe a rate hike could actually boost the American recovery by reassuring the public, encouraging borrowing at cheap levels and generating some income for struggling savers.
“One particularly sad irony in all of this is that the Fed’s inaction may run entirely contrary to its own goals,” David Kelly, chief global strategist at JPMorgan Funds, wrote in a note to clients.
“By holding rates low, I believe the Fed is continuing to suppress economic growth and demand,” he said.

CNNMoney