Category: 2019 Summer SRB Newsletter

The collected articles published as the Summer edition of the south Redondo BeachChatter newsletter.

Recession Chatter

The New York Federal Reserve Bank shows a probability of 33% for a recession to strike in the next 12 months.

A recent Zillow survey of economists and other experts predicts a 52% chance of recession by the end of 2019 and a 73% chance of recession by the end of 2020.

Morgan Stanley economist Chetan Ahya estimates that the trade war with China and threatened increased tariffs, “could wind up in a global recession in about three quarters.”

Sounds very ominous. Of course, the fact it does sound ominous reinforces our tendency to talk about it. Then repeatedly hearing the conversation inflates the concern in our minds. Per Citigroup CEO Michael Corbat, the single biggest threat to the U.S. economy is, “Our ability to talk ourselves into the next recession.” (A Reuters article in April discussed ways in which those in the investment industry avoid using the ‘R word’ to minimize concerns on the part of investors.)

So what prompted this forecast of recession?

One of the key indicators used by many is the ‘inverted yield spread,’ also known as an “inverted yield curve.” Campbell Harvey, a Duke University finance professor first linked yield curve inversions to recessions in the mid-1980s. An inversion lasting three months has preceded the last seven recessions, per Harvey. “From the 1960s, this indicator has been reliable in terms of foretelling a recession, and also importantly, it has not given any false signals yet,” he said.

Without going into a lot of detail, a simple way to think of the inverted yield is this: Typically, a short term loan carries a lower interest rate than a long term loan. It’s logical, in that we are much better at forecasting events over a short term like three months, than we are over a long term, like 10 years. And that is exactly what changed late in March of 2019. It became cheaper to borrow for ten years, than for three months. It was the first time since mid-2007 that the yield curve had flipped.

Whether now or later, it is inevitable that a recession will come. That’s the way our economic system works. And preparing for the inevitable is simply wise. We recommend you evaluate your financial position in light of the possibilities and plan to protect your assets. If we can help with real estate information and valuation, don’t hesitate to call.

Ibuyers: Are they Worth the Cost?

iBuyers, instant Buyers, internet Buyers, investor Buyers …

Today, large online real estate service companies are repositioning themselves as investors. These services, like Opendoor, Offerpad, Zillow Offers and Redfin Now, have become known as iBuyers. With their own in-house brokerage services, they handle the entire transaction in an effort to appeal to sellers who want to sell their home with zero hassle. The process essentially eliminates agents who aren’t directly affiliated with the iBuyer companies, automatically reducing the ibuyer’s cost.

Strategically, ibuyers strive to make the initial offer somewhat close to market value. Some, like ZillowOffers, encourage sellers to request value estimates from real estate agents, to provide more assurance of the value. All will inspect the property and adjust the contract price, typically after a contract has been signed. This varies slightly from the normal sales process in that a conventional buyer will have viewed the home prior to making an offer, and incorporated the general condition of the home into the offer price.

“…an ibuyer is purely investment oriented and won’t negotiate.”

There is typically little negotiating room with ibuyers. There will be an inspection and the recommended repairs are priced out and subtracted from the initial offer on a “best and final” basis. Unlike a broker assisted sale where the buyer is emotionally involved, an ibuyer is purely investment oriented and won’t negotiate.

To the ibuyer, the ideal situation is to represent the seller and themselves. The seller is happy because it was quick and easy. The next step for the ibuyer is to make the repairs and list it for sale at an increase in price, once again trying to be the sole broker on the transaction. One could think of it as the real estate version of a vertical market. The ibuyer acts as the listing agent, the buyer, the buyers agent, the investor, and the ‘fix-n-flip’ contractor instead of having separate professionals for each step.

“It’s a sweet deal–for the ibuyer.”

It’s a sweet deal–for the ibuyer. Savings include sales commissions, much of the closing cost, and contractor profit margins. On the flip side of the ledger, the income includes “service fees” charged to the seller, usually in the 7% to 7.5% range, well above the highest real estate broker commissions. Some studies estimate that the final cost to the ibuyer is 15-20% below market value.

Clearly, sellers who use iBuyers end up netting less money, either through a below market purchase price or the higher fees compared to a traditional brokered sale. Is it worth the higher cost to avoid the hassle of making improvements, preparing the home to sell, and keeping it clean long enough to find a buyer who plans to live in the home?

“…it should not be the only option considered.”

When a home is severely outdated or dilapidated and the seller is unable to make improvements, an ibuyer may be the best option. Or, when the market is slow and it’s imperative that the home be sold promptly, an ibuyer may be a good solution. Under any circumstances, it’s certainly one more source to complete a sale. Given the size of the transaction and the cost involved, it should not be the only option considered.

Tuna Niçoise Salad

Ingredients

  • ¾ cup extra-virgin olive oil
  • ¼ cup fresh lemon juice
  • 2 tsp. Dijon mustard
  • 1 tsp. freshly ground black pepper
  • 1 tsp. kosher salt, plus more
  • 6 large eggs
  • ½ lb. green beans, trimmed
  • 1 lb. new potatoes, baby-size, or cut to approx. 1” chunks
  • 2 medium tomatoes, cut into wedges
  • 4 cups mixed salad greens
  • 3 cups chunk light tuna, flaked
  • Olives, capers, peperoncini, pickles, or other pickled-briny ingredients (for serving)
  • Flaky sea salt

Recipe Preparation

  • Whisk oil, lemon juice, mustard, honey, pepper, and 1 tsp. kosher salt in a medium bowl; set dressing aside.
  • Bring a medium pot of salted water to a boil. Carefully add eggs and cook 7 minutes. Using a slotted spoon, transfer eggs to a bowl of ice water (keep pot over high heat); chill until cold, about 5 minutes. Peel; set aside.
  • Meanwhile, add green beans and potatoes to the same pot of boiling water and cook until just tender, 2–4 minutes for green beans, 10–15 minutes for potatoes. Using a slotted spoon, transfer to bowl of ice water; let sit until cold, about 3 minutes. Transfer to paper towels; pat dry.
  • To serve, slice eggs in half and arrange on a platter with cooked and raw vegetables and tuna. Top with pickled-briny ingredient(s), sprinkle with sea salt, and drizzle some reserved dressing over. Serve with remaining dressing alongside.
  • Do Ahead: Dressing can be made 5 days ahead; cover and chill. Eggs can be boiled and vegetables blanched 2 days ahead; cover and chill separately.