Situated on 2.38 acres and backing to Forest Service land, this property encapsulates privacy and seclusion without compromising your proximity to the lake. As a member of Tahoe Swiss Village’s homeowner’s association, you can enjoy the use of two buoys, two piers, and a private beach located just across the street. This custom home was initially envisioned as a mountain lodge with an industrial feel, and the dedicated group of minds behind it brought this vision to life. It was designed, engineered, and built by local teams who have a deep affinity for this area and worked together to seamlessly integrate the intimate characteristics of the home with the nature that surrounds it. The methodical detail put into every decision is evident from the moment you walk in the 10-foot front door.
Completed in 2020, this home features endless unique components, such as a hanging staircase made out of forged steel, the use of reclaimed wood from the original Tahoe Tavern pier that was used for multiple pieces throughout the home, a custom A-symmetrical front gate, a 20-foot stone, floor-to-ceiling, double-sided fireplace centered in the great room, and much more. The main home has five bedrooms, four and a half bathrooms, and a 1,400-square-foot deck with a covered patio and wood-burning fireplace. The guest house is a fully detached one-bedroom, one-bathroom unit with four additional built-in bunk beds to accommodate both friends and family.
Nestled between the guest and main homes is an outdoor patio with a gas fireplace and a 30′ outdoor water feature. There are two separate garages that can comfortably house five cars and a boat. The radiant heat, air conditioning units, air purifying system, elevator, and heated stairs and driveway are the finishing touches to ensure life at Cherry Street is as effortless as it gets.
This past week the Federal Reserve raised rates for the 10th time in a little over a year. Let’s discuss what happened as we await yet another Fed rate hike next Wednesday.
As we expected, the Federal Reserve raised the Fed Funds Rate to a range of 5.00% – 5.25%. Remember, this interest rate affects short-term loans like credit cards, autos, and home equity lines of credit.
The big question is whether this will be the last hike. When the Fed statement was released, the markets believed the Fed was signaling a pause by omitting the following line from the previous statement: “The Committee anticipates that some additional policy firming may be appropriate.”
However, shortly after the statement was released, Fed Chair Powell hosted a press conference and right at the top said the Fed Members have not discussed a “pause” in rates. Bottom line? Expect more uncertainty and volatility as it relates to rates.
Sound And Resilient
This is the term Fed Chair Powell used to describe the banking sector. Unfortunately, we are seeing more banks have issues. This week it was First Republic taken over by JP Morgan Chase and as of this writing PacWest was said to be “exploring strategic options.” The fear of banking contagion has elevated uncertainty in the financial markets. It’s not clear if and how many more banks will continue to have issues. Bottom line? The fear of this story has created a “safe haven” to trade into bonds where prices move higher, and rates move lower.
European Central Bank Hikes By Less
The European Central Bank (ECB) hiked their benchmark rate by .25%, the smallest since the start of their hiking cycle. Like our Fed, they too signaled they would be “data-dependent” going forward, leading markets to speculate a pause on future rate hikes.
Bottom line: The Federal Reserve is sending mixed messages on the future direction of rates. Meanwhile, long-term rates, which the Fed doesn’t control, are near their best levels in months and sense all the uncertainty in our economy will prompt the Fed to pause and potentially cut rates later this year. The incoming data and issues in the banking system will determine what happens next.
Looking Ahead
Expect market volatility to continue next week. The Consumer Price Index (inflation) will be reported. If this number comes in higher than expected, rates could rise. The opposite is true. Despite this being a backward-looking number, we will have Fed officials continue to speak and comment on the release and how they feel it impacts future Fed policy and interest rate decisions.
Good morning. The Fed must choose between two unpleasant options today. It’s a reminder of the high cost of weak bank oversight.
The Federal Reserve building. Haiyun Jiang/The New York Times
BY DAVID LEONHARDT
The New York Times
March 22, 2023
Inflation — or turmoil?
The Federal Reserve faces a difficult decision at its meeting that ends this afternoon: Should Fed officials raise interest rates in response to worrisome recent inflation data — and accept the risk of causing further problems for banks? Or should officials pause their rate increases — and accept the risk that inflation will remain high?
This dilemma is another reminder of the broad economic damage that banking crises cause. In today’s newsletter, I’ll first explain the Fed’s tough call and then look at one of the lessons emerging from the current banking turmoil. Above all, that turmoil is a reminder of the high costs of ineffective bank regulation, which has been a recurring problem in the U.S.
The Fed’s dilemma
The trouble for the Fed is that there are excellent reasons for it to continue raising interest rates and excellent reasons for it to take a break. On the one hand, the economic data in recent weeks has suggested that inflation is not falling as rapidly as analysts expected. Average consumer prices are about 6 percent higher than a year ago, and forecasters expect the figure to remain above 3 percent for most of this year. That’s higher than Fed officials and many families find comfortable. For much of the 21st century, inflation has been closer to 2 percent.
An inflation rate that remains near 4 percent for an extended period is problematic for several reasons. It cuts into buying power and gives people reason to expect that inflation may stay high for years. They will then ask their employers for higher wages, potentially causing a spiral in which companies increase their prices to pay for the raises and inflation drifts even higher. Today’s tight job market, with unemployment near its lowest level since the 1960s, adds to these risks. The economy still seems to be running hotter than is sustainable.
This situation explains why Fed officials had originally planned to continue raising their benchmark interest rate at today’s meeting — thereby slowing the economy by increasing the cost of homes, cars and other items that people buy with debt. Some Fed officials favored a quarter-point increase, which would be identical to the increase at the Fed’s meeting last month. Others preferred a half-point increase, in response to the worrisome recent inflation data.
The banking troubles of the past two weeks scrambled these plans. Why? In addition to slowing the economy, higher interest rates depress the value of many financial assets (as these charts explain). Some bank executives did a poor job planning for these asset declines, and their balance sheets suffered. When customers became worried that the banks would no longer have enough money to return their deposits, a classic bank run ensued. It led to the collapse of Silicon Valley Bank and Signature Bank, and others remain in jeopardy.
If Fed officials continue raising their benchmark rate, they risk damaging the balance sheets of more banks and causing new bank runs. That’s why a half-point increase now seems less likely. Some economists (including The Times’s Paul Krugman) have urged the Fed to avoid any additional increases for now. Many analysts expect the Fed will compromise and raise the rate by a quarter point; Jason Furman, a former Obama administration official, leans toward that approach.
The decision is unavoidably fraught. The Fed must choose between potentially exacerbating problems in the financial markets and seeming to go soft on inflation.
Why bailouts happen
All of which underscores the high cost of banking crises. In most industries, a company’s collapse doesn’t cause cascading economic problems. In the financial markets, the collapse of one firm can lead to a panic that feeds on itself. Investors and clients start withdrawing their money. A recession, or even a depression, can follow.
These consequences are the reason that government officials bail out banks more frequently than other businesses. Bailouts, of course, have huge downsides: They typically use taxpayer money (or other banks’ money) to subsidize affluent bank executives who failed at their jobs. “Nobody is as privileged in the entire economy,” Anat Admati, a finance professor at Stanford University’s business school, told me.
During a crisis, bailouts can be unavoidable because of the economic risks from bank collapses. The key question, then, is how to regulate banks rigorously enough to minimize the number of necessary bailouts.
Over the past few decades, the U.S. has failed to do so. After the financial crisis of 2007-9, policymakers tightened the rules through the Dodd-Frank Act. But Congress and the Trump administration loosened oversight for midsize banks in 2018 — and Silicon Valley Bank and Signature Bank were two of the firms that stood to benefit.
As complicated as finance can be, the basic principles behind bank regulation are straightforward. Banks require special scrutiny from the government because they may receive special benefits from taxpayers during a crisis. This scrutiny includes limits on the risks that banks can take and requirements that they keep enough money in reserve to survive most foreseeable crises. “You make sure they have enough to pay,” as Admati put it.
Bank executives and investors often bristle at such rules because they reduce returns. Money held in reserve, after all, cannot be invested elsewhere and earn big profits. It also can’t go poof when hard times arrive.
After last week’s surprisingly strong Jobs Report, Fed Chair Jerome Powell spoke about the economy and direction of rates. Let’s walk through what happened and what to watch in the week ahead.
“The strong Jobs Report shows you why we think this will be a process that takes a significant period of time.” Fed Chair Powell 2/7/23.
BY EPHRAIM SCHWARTZ
Partner, Mortgage Consultant CMPS
O’Dette Mortgage Group
February 14, 2023
The Federal Reserve has a dual mandate, which is to maintain price stability (inflation) and promote maximum employment. On the inflation front, it appears inflation has indeed peaked and is on the decline. The Fed Chair reiterated the “disinflationary process” has begun. This is a positive development for the economy, housing, and long-term rates.
On the labor market front of the Fed’s mandate, the Fed in its desire to slow demand and thus inflation, wants to see some unemployment. The good news/bad news? Last week, the Bureau of Labor Statistics (BLS) reported the unemployment rate at 3.4%, the lowest in 53 years…that is good news. The bad news is it means the Fed will look to raise rates by .25% in March and another .25% in May, thereby lifting the Fed Funds Rate above 5.00%.
This renewed outlook for a higher Fed Funds Rate has elevated uncertainty and volatility in long-term rates, which move up and down based on economic conditions and inflation, both of which are easing and a reason why long-term rates are lower than short-term rates.
“Likely to see some softening in labor market conditions” – Powell
This is a reasonable assumption considering the number of planned layoffs announced this year, while we sit at multi-decade low unemployment, it seems like up is the only direction for unemployment.
Soft Landing Back in Play
Due to the current strength of the labor market, there is a growing chance the Fed can raise rates and lower inflation towards its 2.00% target without triggering a deep recession.
History has shown that recessions do not take place with unemployment at 4% or below without some sort of surprise shock to the economy.
Let’s hope the Fed is not too successful in “creating” unemployment because if it quickly rises, the idea of a soft economic landing could go away quickly too.
3.70%
As we mentioned, long-term rates have responded negatively to last week’s strong jobs report, because good news is bad news for bonds and rates. The 10-yr Note touched 3.33% last Thursday and touched 3.70% just a few days later. However, rates remain beneath where the 10-yr yield opened 2023 at 3.85%.
“We are going to react to the data” – Powell
Here the Fed Chair reminds the markets that last Friday’s Jobs report was strong, but backward looking and lagging while other economic indicators show signs of s slowdown. The Fed does not want to over hike rates into a slowing economy and be the reason for the recession. So, while the market is currently pricing in two more rate hikes and a rate cut in December, this story could quickly change once again.
Bottom line:Rates and inflation have peaked. Housing activity has jumped in the past weeks as a result. The incoming data will determine how much better rates can get in the next few weeks leading to the next Fed Meeting.
Looking Ahead
Next week’s CPI is a very important number. If it meets or comes in lower than expectations, we could see home loan rates revisit the levels seen last week right before the Jobs Report last Friday. We will also see the latest readings on housing and the strength of the consumer, by way of Retail Sales. As fast as the story changed when the strong jobs data hit, things can change quickly upon these reports.
The all important CPI (consumer price index) inflation came out this morning and mixed news; the year over year January CPI report fell to 6.4%, which was a hair lower than last month’s 6.5% – which is good, but higher than market expectations of 6.2% – which could have been better.
Reminder inflation is the arch enemy of bond prices, and therefore mortgage rates, and the reason we’ve seen mortgage rates improve since what appears to have been the peak in November is because inflation has been coming down. CPI peaked last summer at 9.1%, and has since been steadily decreasing. It was the November & December CPI reports coming in lower than market expectations that were the impetus for mortgage rates improving over the past few months, and then last months data at 6.5% came in right at expectations, so today’s report was much anticipated and bucked the prior three month trend and came in higher than expectations.
Looking at the numbers from a month over month perspective, which is arguably the most relevant in measuring present trend, the month over month figure was up 0.5%, which was up from 0.1% last month. Shelter (housing) is the biggest factor here increasing 0.7%, making up the majority of the month over month numbers. National housing costs are not coming down.
This month’s jobs & CPI reports are now behind us, the labor marker remains very strong, and inflation is moving lower, albeit slowly. Inflation creeping lower is good, but as expected we should not expect a straight-line drop in prices, and there will be slower and outright pauses in declines going forward.
As a result of this morning’s CPI report, bond yields/mortgage rates have ticked a hair higher. See chart below of the 10 yr T, which jumbo rates are based on, for a graphical context. As you can see, rates peaked first week in November, have since come down a bit, and now giving up a bit of ground.
Regarding conversations with clients; 30 yr fixes in the 6%’s with option of getting into the 5% with points, is a healthy “normal” place for them to be, and still well below historical long term averages. We’re still seeing jumbo rates notably lower than conforming (approx ~.625% .75%). Lastly, even after rates have improved, considering grossing up a sale price & requesting a seller credit can still be a good strategy to get buyers into not just a more palatable rate, but one that is really quite good and a loan they may hold for as long as they’re in the property.
Interest rates hover near the best levels since September, despite several good economic readings reported. Let’s discuss what happened and see what is coming next week.
Gross Domestic Product, a measure of economic growth, for the Fourth Quarter 2022 showed the economy expanded at a 2.9% annual rate, down slightly from the 3.2% rate in the Third Quarter 2022. Seeing the economy grow in the back half of 2022 after negative growth in the first half of 2022 is good news.
This positive reading elevates the chance of a “soft landing” by the Fed, where they hike rates to slow inflation but do not slip us into a recession.
Unemployment Line is Historically Short
Initial Jobless Claims for December came in at 186,000…the lowest reading in 9 months. This is also good news as it tells us the length of the unemployment line. If the amount of people signing up for first time unemployment benefits remains near historical lows, it further lowers the chance of a recession. Moreover, it highlights the continued strength in the labor market, and this is paramount as jobs buy homes. Yes, we want interest rates to move lower but if someone doesn’t have a job or is in fear of losing their job, they can’t commit to a home purchase. Let’s hope the labor market remains strong as the Fed continues to hike rates to slow demand and lower inflation.
New Home Construction Costs Coming Down
The National Association of Homebuilders reported that building materials costs, less energy, are up 8.3% which is a big increase annually. However, the price growth is down a staggering 60% as input costs increased over 16% in 2021.
We should expect input cost growth to slow further in response to slower demand and further reopening of supply chains. This is another positive theme as we move through 2023.
Smaller Fed Rate Hike Still Priced In
One of the headwinds to the economy is the threat of higher short-term rates by the Federal Reserve. The good news there? After four consecutive .75% rate hikes, followed by a .50% hike in December, the financial markets are fully pricing in a smaller .25% hike at next week’s Fed Meeting.
The markets also believe the Fed will raise rates by another .25% in March and then pause to allow all the hikes that date back to last summer to seep into the economy.
This means the Terminal Rate, or the fancy way of saying the peak in the Fed Funds Rate, is going to be in a range of 4.75- 5.00%. From there we will have to continue to watch the standoff between the Fed who says they want to keep rates higher for longer. Additionally, with no rate cuts this year versus the financial markets, which are starting to “price in” as many as two rate cuts later this year.
Bottom line: The economy is showing mixed signals, but the labor market remains strong, and we are nearing the end of Fed rate hikes. So, the plan to land the U.S. economy softly and avoid a deep recession remains very much in play. That is good news for housing and the economy.
Looking Ahead
Next week is Fed week. As of this moment, the markets fully expect the Fed to raise rates by .25%. Anything other than that would be a surprise and generate a lot of market volatility. The Fed generally looks to avoid sending the market mixed signals but the markets will be on edge.
A federal emergency declaration has been proclaimed by President Biden and financial assistance may be forthcoming. While the federal government has not yet declared a disaster (a different designation that provides different resources) for California that could authorize direct financial assistance to affected residents.
Placer County requests those who have suffered damage to report itHERE.
If the issue is life threatening please dial 911. The intention of the survey is to allow the reporting of non-emergency issues during periods when the Emergency Operation Center is active. Your answers to the brief survey will help better document the extent of damage these storms have caused, so Placer County can continue to advocate for all available support for impacted residents.
With more weather still in the forecast, please use the Ready Placer Dashboard for the latest on road and weather hazards and to access resources to help protect your family and property.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The U.S. Bureau of Labor Statistics (BLS) calculates the CPIas a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending.
BY EPHRAIM SCHWARTZ
O’Dette Mortgage Group of Synergy 1 Lending
January 12, 2023
January’s CPI (consumer price index) inflation data was released this morning and came in right at expectations of 6.5%. This is good news as it’s notably lower than December’s reading of 7.1%, and CPI inflation has now moved lower for 6 consecutive months, with the last 3 CPI reports being the real catalyst in mortgage rates lower. While this 6.5% CPI figure remains notably higher than the Fed’s target of 2% inflation, today’s report was still good news in the context of how inflation/mortgage rate are recovering from the distortion created by the Fed’s red line full throttle bond purchase program during Covid, and all supply chain related Covid issues which are mostly in the rear view mirror. Here’s some context to share with clients and what it all means for mortgage rates.
We’re currently in this interesting window of time where it’s valuable for real estate investors to understand that increases to the Fed Funds rate does NOT mean mortgage rates increase. Sometimes reiterating the mechanics of what determines mortgage rates (bond prices, which have move significant been determine by 2 things in the past few years: the Fed’s bond purchase program and inflation) can instigate the question of; “why does it matter if the Fed hiking the Fed Funds rate isn’t what drives mortgage rates higher, it seem they’re usually moving in the same direction?”, in other words – does it really matter if it’s correlation or causation?
Answer: yes – very much so, and the current market is precisely why it’s so important to clearly communicate the differences & mechanics for clients. As of November, we are now in a phase where the Fed will continue to hike the Fed Funds rate, while mortgage rates are moving lower. This is key for those looking to capitalize on a real estate opportunity before mass market sentiment pendulums back.
Here’s what’s going on with inflation mortgage rates: CPI, a primary measure of inflation, had peaked at 9.1% this past summer. The Fed hikes the Fed Funds rates (short term consumer debts) to fight this inflation. The November & December CPI reports both came in notably lower/better than the market expectation, this benefited bond prices, and therefore mortgage rates. Since mid-November we’ve been talking about how; unless we got surprisingly bad news on inflation in the months ahead, it looks like mortgage rates peaked that first week in November. Today’s CPI data coming in right at expectations further reinforces this trend. To put into perspective, the 10 yr Treasury, which is what Jumbo mortgage rates follow, hit ~4.35% that last week of October, then had it’s best day of the year the same day the November CPI report came in lower than expectations, then again moved another leg lower after the December CPI data, and is settled in today at ~3.4%. This is significant good news as we all know higher mortgage rates are part of the downward pressure on real estate prices, and vice versa.
We’re still seeing Jumbo rates today a bit lower than conforming, and the larger loan amounts actually pricing the best. For example today, a ~$2.0M purchase with 20% down, can get a 30 yr fix in the 5%’s with no points, and as low as ~5.25% with a little over a point. This is a historically healthy place for mortgage rates to be.
In sum, the headlines will soon again talk about rates moving higher when the Fed increases the Fed Funds rate again, which is coming, and meanwhile mortgage rates have already come down to a healthy level.
Change is the only constant in life. After two years of a COVID-fueled buying frenzy that produced stratospheric price spikes across all segments of the market, 2022 brought a bucket of icy lake water on the head. A dramatic reversal of economic conditions fueled by the Ukrainian conflict, historic interest rate hikes, a crypto collapse, and the erosion of equities rippled through Tahoe real estate. For the first time since COVID, we saw a noticeable lack of urgency as buyers were willing to wait on investing in vacation homes. By mid-summer, both supply and days-on-market had distinctly increased. Gone were the days of multiple offers within days of listing homes and the manic-ness we experienced since the pandemic onset. By the third quarter, we saw a palpable calm in luxury real estate sales. In fact, only 11 single-family lakefront homes between Rubicon Bay and Incline Village sold all year, the lowest we have seen since before our reporting began in 2006. Yet, median price has been slow to respond. As a result, in 2022, each micro-region (with the exception of lakefronts due to small sample size), saw median price reach historic highs, while sales volume decreased significantly. The disparity between median price and demand, alongside uncertain market conditions, continues to contribute to buyers willing to remain on standby, waiting for market corrections and for economic indicators to improve confidence.
As sellers reset to the new normal, we expect buyers to start to again pull their paddles from beneath their chairs in 2023. For buyers who have been patiently awaiting value opportunities, 2023 should present well. While the selling environment is not as favorable as it has been over the past few years, sellers can still take advantage of the historic run-up in pricing from COVID. However, it will be imperative that sellers adjust expectations on pricing and time on market. As we close the chapter on the COVID-driven real estate binge, the winds of change will still blow in opportunities around Lake Tahoe.
Points of Interest: January – December 2022
Single family homes sold decreased 19% year over year.
Median price increased 7% year over year and is on a 7-year growth trend.
Sales volume reached a 8-year low. Median price reached an historic high.
210 of 903 homes (23%) sold over $2 million.
Points of Interest: January – December 2022
Single family homes sold decreased 10% year over year
Median price increased 24% year over year and is on a 5-year growth trend.
Sales volume reached a 6-year low. Median price reached an historic high.
