Once again our County and our real estate was tested by fire this month. I hope and pray that each of you and your family and your homes and properties were safe.
One hundred years ago, the world suffered an even bigger surprise than our recent fires. Instead it was a shot that was “fired” that began our first World War, starting in Eastern Europe and spreading around the world. In the end it shattered Europe, cost millions of lives and changed life forever. A hundred years later, Eastern Europe threatens to entangle the world. Lest, like in past wars, you think who cares it doesn’t affect me, let me point to history. Besides all of the horrors of war, they always lead to inflation and higher taxes and higher inflation automatically pushes up interest rates.
After removing the volatile food and energy prices (who eats or uses gas?) from the basket, core inflation increased at a 2.5% annualized rate in March, the highest rate in a year. If this rate continues the Fed will have no choice but to raise rates (sooner than the 2015 guidance given so far). Inflation looks fit to rise. The National Association of Realtors is forecasting 3.5% inflation and 5.5% 30 year rates by next year at this time.
For an interesting perspective of interest rates over history click here. I am always reminded of the forecast that interest rates will go up and then come down, I just can’t predict how much and when!
The technology sector continues to lead the rebound in San Diego employment. This has been evident in both direct jobs but also the indirect effect from spending by technology workers. A barbell economy is one where middle-wage jobs are lost as the economy is polarized with high wage, high skill jobs on one end and low-wage low-skill jobs on the other. I recently read that this is the same issue affecting the “Grey Tsuami” (the aging yuppie bubble). The social welfare system cannot afford to pay for the bubble, however at the same time, those with professional degrees are working longer into their lives. I often say that jobs drive real estate (and they do). But I am thinking we ought to argue that education drives real estate.
Speaking of getting older and richer, I recently read that the richer you are the older you’ll get. The study showed that if you are in the top wealthiest 10% (all our clients I hope!) you can expect to live 16 years longer than those in the bottom 10%. If you can’t live longer by being rich, keep your eyes on a new San Diego start up by Craig Venter (sequencer of the human genome). His start up, Human Longevity Inc., hopes to make 100 years old the new 60. If you are looking to be more like the rich, then pay attention to a study by Investment Program Association who found that high net worth investors believe Commercial Real Estate is currently a more attractive asset class than equities.
If you already own real estate (or even if you plan to), you should be VERY concerned about proposals that the Federal government is weighing to eliminate or limit Section 1031 of the tax . “Like Kind” exchanges are one of the few opportunities to defer gains (and in death eliminate the gain and the tax). Unfortunately, limiting or eliminating the 1031 Exchange will not bring more money to the government because most prospective sellers will simply hold off and not sell at all. The ripple effect of this on lenders, escrow and yes yours truly will act as a drag on employment, property values and the overall economy. Contact your representatives!
After recent fires and a three generation family vacation, I have to tell you that I am so thankful for so many things. Please know that the relationships we build with you, so that we may all live long and prosperous, are amongst those things for which I am thankful. I hope you enjoy this month’s story.
A brother and sister had made their usual hurried, obligatory pre-Christmas visit to the little farm where dwelt their elderly parents with their small herd of horses. The farm was where they had grown up and had been named Lone Pine Farm because of the huge pine, which topped the hill behind the farm.
The old folks no longer showed their horses, for the years had taken their toll, and getting out to the barn on those frosty mornings was getting harder, but it gave them a reason to get up in the mornings and a reason to live. They sold a few foals each year, and the horses were their reason for joy in the morning and contentment at day’s end.
Angry, as they prepared to leave, the young couple confronted the old folks “Why do you not at least dispose of The Old One.” She is no longer of use to you. It’s been years since you’ve had foals from her. You should cut corners and save so you can have more for yourselves. How can this old worn out horse bring you anything but expense and work? Why do you keep her anyway?”
No one noticed the insulation smoldering on the frayed wires in the old barn. None saw the first spark fall. None but the “Old One”. In a matter of minutes, the whole barn was ablaze and the hungry flames were licking at the loft full of hay. With a cry of horror and despair, the old man shouted to his wife to call for help as he raced to the barn to save their beloved horses. But the flames were roaring now, and the blazing heat drove him back.
By the time the fire department arrived, only smoking, glowing ruins were left. They nodded thanks to the firemen as there was nothing anyone could do now. The old man turned to is wife, brokenly he whispered, “We have lost much, but God has spared our home. Let us gather strength and climb the hill to the old pine where we have sought comfort in times of despair.
The journey up the hill was hard for their old bodies in the steep snow. Suddenly, the old man gave a cry of wonder and incredible joy. Bedded down about the “Old One” close to the trunk of the tree, was the entire herd, safe.
At the first hint of smoke, she had pushed the door ajar with her muzzle and had led the horses through it. Slowly and with great dignity, never looking back, she had led them up the hill, stepping cautiously through the snow. And now, she lay among them and gazed at the faces of the old man and his wife. Those she loved she had not disappointed. Her body was brittle with years, tired from the climb, but the golden eyes were filled with devotion as she offered her gift- – –
