A WEEKLY GLIMPSE OF REAL ESTATE NEW
10/19/26
The FED Faces a Mixed Bag of Financial Information: At the last FED meeting, by unanimous Board agreement, the short-term FED rate was increased by a quarter percent. Remember that raising rates is the best tool the FED has for combating rising inflation. Opinions after the meeting were nearly universal that the FED would likely raise rates twice more this year (at their October and December meetings). In early October, inflation news improved and the market quickly suggested that the FED would likely pause any additional rate increases, at least at their upcoming meeting on October 27-28.
But what a difference a week makes. Inflation, increasing from 3.4 to 3.7 percent in one month has changed projections for FED intervention back to likely 2 short-term rate increases by the end of the year. For perspective, remember that during the pandemic, inflation reached 9% for a short period before ending 2024 at 2.9%. The retreat continued after the change of presidency, reaching a low of 2.3 in April of 2025 when the FED’s target rate of 2% a year inflation seemed within reach. The start of hostilities with Iran began in June 2025 (first bombardment) and the inflation factor has now climbed steadily reaching 3.74% today. When the FED raises the short-term rate, the interest rate on credit cards, auto loan and equity line loans ae usually the first to feel the change as payments go up.
On the other side of the ledger, politicians facing inflation and affordability questions, point to the stock market, wobbly but trending upward, labor remaining resilient in spite of real wages losing a little ground and the efforts to reduce oil prices (increase diesel oil supplies and a small decline in gas prices). But the general consumer reaction seems to be that higher prices are not going to be easily contained and affordability is a key problem they want politicians to address. Hence the focus on the mid-term election.
Most economists attribute the bulk of increasing inflation to the continuing war and its restrictions on oil supplies. Tariffs, especially the 50% tariff imposed on Canadian goods, is a second major concern and finally, the massive construction debt being amassed by artificial intelligence, especially in building data centers. Although other factors are in play inthe inflation picture, the above big three are the ones acquiring most of the attention with little expectation from consumers that there are any near-term solutions on the horizon.
Lease Options – Know How they Work: Many real estate watchers anticipate that 2027 will mirror todays high interest rate market accompanied by a stabilized home value market. Although this picture is not particularly inspiring, sellers will want to sell and buyers will want to purchase. These conditions often promote “creative” options, one of which is the use of a lease option.
A “lease with option to purchase” is an agreement between a seller and buyer to sell a property for a specific dollar amount within a specified period of time, often within 12 – 18 months. The parties agree to a non-refundable deposit (option amount) from the lessee(buyer), a monthly rent amount and any other contractual matters. The reason for entering into such an agreement are usually:
- Waiting for interest rates to decline (often an unwise bet)
- Allowing time for the buyer to accumulate more down payment funds (often with a desire but with no plan to accomplish such savings)
- The buyer expects to be better positioned to purchase (exactly what will be different allowing you to purchase later rather than right now?)
- The property condition does not permit current financing (are there sufficient funds available to renovate the property to lendable status, especially within a short time frame)
To be clear, this can be viable purchase option but it can also become a nightmare. It is necessary to document all funds used in the transaction, initially and during the option period, for the future lender. Determining the purchase price at today’s values or trying to anticipate a future value, will require negotiation, compromise and a well-drafted agreement. Misunderstanding of the “rent credit” can create major problems at final purchase time (a lender will accept as additional down payment funds, only any amount that exceeds normal rent. In other words, a rental payment of $2,000 a month during the option period – with typical rents at $1,500 – will generate only $6,000 of down payment funds during the 12-month option period, not $24,000.
Although this kind of financing can sound appealing, serious difficulties can occur. Make sure you are aware of all of the potential pitfalls. You can find more information regarding lease options on the tip sheet section of our webpage at www.humboldthomeloans.com. If you have other questions, we are only a phone call, text or email away.
Our Tip Sheet Section: Having mentioned our webpage and tip sheet section (above) let me expand on the information available. While nothing replaces acquiring trusted professionals to assist in a sale or purchase, information is empowering. Our tip sheet section is designed to inform. It contains 74 various subjects, mostly prepared to answer typical questions of buyers and sellers. As you educate yourself, make notes of those areas in which you require more information. An informed buyer feels “confident and in charge” of their transaction. Your professional representatives will appreciate your preparation.
Over the Weekend: Mid last week, FED Chairman, Kevin Warsh’s comments were interpreted as indicating the FED would pause its interest rate adjustments. By the weekend Warsh had made another speech skirting any reference to how the FED might react to the disappointing inflation news. he chairman has been adamant regarding his stance on not providing any forward-looking information from the FED preferring, in his words, “to allow the market to determine rates”. The constant change from no rate change to definitely a rate change suggests that everyone is guessing. The economy remains unpredictable.
PLEASE VOTE!
Until next week, be good to yourself and kind to others
10/12/26
A Very Hazy Crystal Ball: Although our interest is focused on real estate and real estate financing, the interconnectedness of the economy sometimes escapes us. Our real estate issues are aggravated by the uncertainty and unaffordability we all face today.
War With Iran: Polls indicate that a majority of Americans to not expect an ending to the hostilities any time soon. Since most supplies transport via truck, ship or plane, high prices for fuel translate to higher prices for consumer needs. The latest sanction relief granted Russia to acquire additional diesel is, according to experts, a very short term band aid. Still higher prices for longer!
Tariffs: In spite of the administration’s comments to the contrary, tariffs on other country’s imported goods is a tax that we consumers pay, raising the cost of most purchases. The current 50% tariff on Canadian materials (our largest trading partner) is especially egregious An unreliable policy means uncertainty for businesses and consumers.
FED Uncertainty: The new chairman’s denial of any forward-looking information makes guessing what the FED will do regarding interest rates all the more unreliable. The recent slight slowing of inflation suggests that the FED MIGHT pause what was widely expected to be a second rate increase. Even if the FED pauses, most anticipate higher rates in the near future. Shrouding the FED in total mystery makes for an indecisive economy.
Artificial intelligence impacts the economy via billions of debt for data center construction that is widely condemned by communities. This propping up of the economy is mostly on future projected AI growth and influence. It is a big bet! The latest announcement of Big Tech’s 1.5 billion dollar investment, much of it to continue building data centers was staggering. A portion of this investment was promised to communities via major tax relief, lower utility costs, infrastructure building, etc. Some reacted with the comment that this sems very much like a bribe. Recent safety issue questions about uncontrolled AI development was scary. Relying upon the largest tech companies to self-govern was not well received by the majority of the public.
And the list goes on. In tough economic times, most tend to adopt a wait and see attitude before investing. Home buyers seem to be in this mode for now. On the other hand, hard times can provide opportunity and it can pay to remain prepared to take advantage.
Low Hire, Low Fire Economy: This is the new tag line for the media. It sems to be in response to the disappointing 29,000 new jobs report last month. The phrase suggests that employers are not looking to hire new people but are also anxious to retain treasured workers. It has proven difficult to measure the impact that the immigration policy has had on employers’ attitudes. Large numbers of immigrants have been typically agriculture, food process, health care workers, etc. Reports of the loss of workers coupled with those who are choosing simply to retain a low profile are transforming the economy. Whether replacements for these absent workers cannot be found or whether employers are voluntarily reducing operations remains unknown. It may be a while before we can measure the impact of a sudden loss of available workers is to our economy and society.
Hedging Loan Locks: This is a complex and complicated system using formulas by which a lender attempts to minimize risk when a loan is initiated and the interest rate is “locked” – for perhaps 30, 45 or 60 days. The short version is that when a lender locks a loan they are committed to delivering that loan to the borrower at the agreed upon rate regardless of what has occurred in the market during the locked period. Adverse market movement could result in significant loss. This is especially so when the market is rapidly adjusting and lenders react by “hedging their bets” related to locking loans. Those who more recently chose to lock their loan rate have benefited as rates have generally continued their upward trajectory. Equally confusing to borrowers is hearing that rates have declined. Note that the media seldom notes the am9unt of reduction, which is usually insufficient to significantly change a locked rate. Our experience remains that rates zoom up but slowly float down.
What To Do: Admittedly, these are turbulent and confusing times when indecision usually results while waiting for additional guidance. Interest rates remain high, changes are occurring to credit and appraisal processes and the overall economy is being buffeted by numerous major issues (see the first comment in this Glimpse). Although history suggests that this is a temporary condition and the economy will improve, the timeline is not yet in sight. So, what is a buyer or seller to do while waiting.
This is a time to prepare. You can be ready to proceed as soon as market conditions improve. (Plus, opportunities occur even in tough times and being prepared will allow you to take advantage of any unexpected opportunities) Prospective buyers can become prequalified. How much can you actually afford. Repair any credit blemishes, continue to save money during this interim period, talk to family about possible gift funds that might be available and generally assure yourself that you are ready to purchase. Sellers can prepare their homes by during the necessary repairs/improvements. Engage your preferred real estate licensee to provide guidance about the new appraisal condition requirements. Research values and be ready to list your home for sale at the most appropriate time. (Sometimes listing during turbulent times can b profitable as there are fewer competing home for sale – another discussion topic with your Realtor.)
Finally, don’t despair. We can’t control the economy (or the weather but we live with it)but we can control our reactions. The economy is always in flux and we think improvement is on the way. It just might take a little while.
Questions for Artificial Intelligence: According to the media artificial intelligence will be our savior or kill us all. Both options are obviously exaggerated but the message is that we need to pay attention to both the positive and negative aspects of AI development. There seems no denying that AI can enhance our lives as well as the community writ large. The likelihood of replacing repetitive jobs, more quickly processing data, providing more leisure time, curing disease and offering health improvements, advancing safety in workspaces and on the road and generally make life better is very appealing and welcoming. On the other hand, recent warnings about the potential threats of uncontrolled AI have been sobering. Individuals are focusing more on “how will AI impact me as an individual”. How will AI, for instance, enhance the life of a student, business owner, factory worker, school teacher, being a parent and the list continues.
The possible positive AI enhancements seem endless. But who is thinking about the unexpected consequences? Our current economy is awash with TECH money, most of it borrowed, and it might be the biggest economic bet ever made. The resistance to data center construction might be the start of a closer look at AI, good and bad. A major driver of the “full speed ahead: crowd is that America must not lose the AI race to China. The world mostly has sane people at the helm, proven by our ability to resolve by agreements to not resort to mutual nuclear destruction for the past 80 years. Maybe it’s time to consider necessary restraints that can be adopted worldwide.
AI is here to stay, so we must also focus on how each of our lives will be improved via AI advances. Planning ahead can blunt some of the potential negatives like job losses or loss of personal connection, while considering how our personal lives might be enhanced.
Currently in the mortgage business, our reliance on AI to perform research, quickly compile documentation and scan contracts has been useful, consumers have made clear their preference for a personal touch during their transactions. This coupling of AI at its best with retention of human endeavor is the likely future for AI.
PLEASE VOTE!
Until next week, be good to yourself and kind to others
EXPERIENCE EXCELLENCE