Hard to believe summer is almost over and the kids are heading back to school in just a couple of weeks.

Year To Date Activity

Properties Sold (single and multifamily): 34

Sales Volume: $51,406,500

Cumulative Value of Fund Properties Sold: $4,634,500

Homes/Units Managed: 261

Properties Leased: 46

Gross Collected Rent: $6,191,747

Brokerage Listings

Property Management Rental Listings

Hard to believe summer is almost over and the kids are heading back to school in just a couple of weeks. Before we get into our regularly scheduled programming, I wanted to flag a federal housing bill currently under consideration that could have major implications, especially here in Southern California.

The proposal would eliminate capital gains taxes on the sale of primary residences.

This could be a huge win for homeowners (and those of us in the business of selling homes), particularly those with long-term ownership in high-appreciation markets--but the ripple effects on inventory, pricing, and overall market behavior could be significant.

Currently, homeowners can exclude up to $250,000 in gains if filing individually, or $500,000 if married, as long as they’ve lived in the home for two of the past five years. In markets like Orange County, where long-term appreciation has been steep, those limits often fall short. When you add in Prop 13 protections and ultra-low mortgage rates, it creates a strong “lock-in” effect that keeps not just retirees but also growing families from making a move.

If passed as written, this bill would eliminate one of the main financial disincentives for longtime homeowners to sell. We manage several properties for clients who no longer reside in the home or are unable to do so. Many of them rent their homes so their heirs can eventually benefit from a stepped-up basis and avoid capital gains. This change could finally motivate that group to list their homes, bringing more inventory to the market.

That said, I think a full exemption is unlikely to survive. A more realistic outcome is an inflation-adjusted exclusion. If the $250,000 and $500,000 limits had been indexed to inflation since 1997, they would be closer to $500,000 and $1,000,000 today.

We’ll continue to monitor this closely and keep you updated on how it may impact listing activity in an already tight housing market.

Single-Family Transactional Market: The for-sale market has continued to cool, and I am starting to hear people discuss how we are in a "buyer's market."

Historically, a buyer's market has been defined as having a 6-month supply or more; however, recently, a 3-month supply is now considered a buyer's market. Based on what we have observed in terms of market behavior, three months appears to be the appropriate threshold.

So, are we in a buyer's market or not?

Well, that depends. Orange County has a 3.4-month supply, which suggests a modest buyer's market. When you drill in further, it is not that simple. Two cities that share a border, Costa Mesa and Irvine, have very different statistics. Irvine currently has 5.2 months of supply compared to Costa Mesa, which has only 2.2 months of supply.

I included Newport Beach in this chart to make another point. I am less worried about Newport Beach's 5.5-month supply than I am about Irvine's 5.2-month supply. Why? Newport Beach has a high concentration of very high-end homes that tend to stay on the market longer, which skews the data. If you filter for homes under $3.0M, the month supply for Newport drops to 3.6 months, whereas Irvine only drops to 4.8 months supply when the same filter is applied.

Before you offer over asking, or try submit a low ball offer on that home you "have to have" dig into the data, it will help you come up with a market specific strategy.

Mortgage Market/Interest Rates: A mortgage spread is the difference between the 30-year fixed mortgage rate and the 10-year Treasury yield. It reflects both the cost of originating and servicing loans and the risk premium investors demand for holding mortgage-backed securities.

Historically, the spread averaged about 1.7 percentage points. Today, it's closer to 2.5 points, meaning borrowers are paying roughly 0.75 percentage points more than they would under normal conditions.

Why the increase? Lender costs remain high, and investors now demand more yield due to Fed policy shifts, an inverted yield curve, and elevated interest rate volatility. The Fed has stopped buying mortgage bonds and is letting its holdings run off, pushing more supply into the private market.

To bring spreads back down, we'd need lower rate volatility, stronger investor demand, and a pause in the Fed's balance sheet reduction. If the spread returned to its historical average, a 4.4 percent 10-year Treasury yield would translate to a 6.1 percent mortgage rate. If spreads tightened further, rates could drop into the high 5s.

ICYMI, here is the link to the discussion I hosted about HELOCs.

Commercial Real Estate (CRE): This month, I want to highlight a fantastic adaptive reuse project right here in Costa Mesa. Before its redevelopment, the property wasn’t doing the City or the neighborhood any favors. If we’re being honest, it was probably a net negative.

Then along comes Chris Moore, a 34-year-old engineer with almost no development experience, and after hearing him talk about the project, he's probably a borderline psychopath. (The good kind!) The kind that takes on near-impossible tasks and somehow sees them through. Chris has an obsessive attention to detail, and along with his team, spent three years completely reimagining and transforming the site.

They navigated obscure corners of the building code that most developers and City staff aren't even aware exist. And somehow, they pulled it off.

I’m highlighting this project because it shows what’s possible along some of Costa Mesa’s more “challenged” corridors. These kinds of efforts don’t just improve properties. They improve neighborhoods. We should be encouraging entrepreneurs who want to invest in our City and breathe new life into under-utilized spaces. What is the best way to encourage someone to do something you want them to do? Make it easy for them.

I’ve been told it might be time to start ramping up my campaign.

Was that too blatant a plug?

Macro Observations: The Federal Reserve kept rates unchanged at its July 30 meeting, holding the federal funds target range at 4.50 percent. While that outcome was expected, the meeting still delivered some drama. For the first time in decades, two Fed governors, Christopher Waller and Michelle Bowman, voted for a rate cut. That kind of dissent is rare and signals growing disagreement inside the Fed about how long policy should stay this tight.

Jerome Powell stayed the course. He acknowledged that inflation has improved, but he also warned that it remains too high. Core inflation, as measured by PCE, held steady at 2.8 percent in July. CPI inflation actually rose, from 2.4 to 2.7 percent year-over-year. That jump likely reflects sticky services prices and some early effects of new tariffs. Powell gave no indication of a policy shift, instead repeating that the Committee will move based on incoming data.

The data is sending mixed signals. The Atlanta Fed’s GDPNow estimate for Q3 growth has pulled back to 2.3 percent, down from 2.9 percent just a month earlier. That’s still solid, but slowing. Payroll growth has also cooled. Private employers added just 75,000 jobs in July, down from 137,000 in June. But at the same time, job openings rose from 7.395 to 7.796 million, suggesting labor demand hasn’t completely rolled over.

Markets are adjusting their expectations. Treasury yields dipped to 4.35 percent on the 10-year, down from 4.51 percent a month ago. Equities have held up well. SPY is up to $632.34, and the tech-heavy QQQ sits at $565.28. Investors appear to believe the Fed can land softly, or at least avoid a hard landing.

The "soft landing" narrative has been the dominant theme all year. And to be fair, it’s still intact. Inflation is lower, unemployment remains low, and growth—while slower—is still positive. But the Fed has not declared victory. If they wait too long to cut, they could overreact to a slowing labor market and weakening demand. The longer they hold at current levels, the more they risk turning a soft landing into something bumpier.

Looking ahead, the market will closely watch August’s data. The following jobs report and CPI release will help clarify whether the Fed’s patience is justified or if they’re missing their window. For now, the message is the same: progress is real, but not enough. Rates stay where they are. The Fed still holds the upper hand—for now.

What's The Good Word: I was having a conversation with someone in our fund about a property we were looking at purchasing, and they brought up the softness in the for-sale market. Their comment was something along the lines of:

“The market is a little soft. We should probably be conservative and assume a lower exit price, maybe down 10%?”

Fortunately, I had just seen a chart showing U.S. home price returns going back to 1942. In more than 80 years of data, there has only been one year where national home prices declined more than 10 percent, and that was 2008, which saw a 12 percent drop. That’s it.

The chart brought up a few points worth sharing:

History does not repeat itself, but it does rhyme. Prior to 2008, the U.S. had never seen back-to-back years of home pricing declines. Then suddenly we got three in a row. Just because something has not happened before does not mean it cannot happen. That is the whole idea behind a 'Black Swan'. Nassim Taleb talks about this extensively in his books, The Black Swan and Fooled by Randomness. We build expectations around what has happened and then get blindsided when something outside those lines occur.

National averages are almost meaningless. Austin is down 11 percent over the past three years. Costa Mesa is up 16 percent over that same period. That is a 27-point swing between two real cities. National data helps with context but it is not a tool you can underwrite with. Real estate is local, and price movements are rarely uniform.

Housing prices are sticky on the way down. Most sellers are not forced to sell. They have equity, they have low-rate mortgages and they often have flexibility on timing. Unless you have a market flooded with overleveraged owners, distressed sellers, or rapid inventory increases, price drops tend to be slow and shallow. What we have seen over the past 12 to 18 months is not a crash, it is a volume correction.

So yes, a 10 percent decline is possible. But if you are using 2008-style assumptions in a relatively healthy, supply-constrained market, that is not conservative underwriting. That is just bad history.

Project Updates: We have several active projects; here is a quick update on a few of them.

Lillian, Costa Mesa: We just closed escrow on this project on Monday, and we couldn't be more excited. This is an opportunity to do something big. Lillian is one of our favorite streets in Eastside Costa Mesa. We are going to tear down the existing structure (which has not been lived in for who knows how long) and build a beautiful 4-bedroom, 3-bath house. We have kicked off our architect and I am excited to see what he and our design team comes up with.

All I want - high ceilings and LOTS of windows.

Lucero, Tustin: We have completed all the major construction and have started the build-back process. We expect to have this home in the market sometime in September.

A few notes on this home: our design team is leaning into a wabi-sabi vibe on this home. Wabi-sabi is a Japanese design style that translates to "perfectly imperfect." I have no idea how they will pull it off, given some of the property's constraints but I'm looking forward to seeing the final product.

Here are a few things we like about the property:

1. Single story

2. Three-car garage

3. Good schools

Lastly, if you can't tell, that's level 5 drywall finish. It's labor intensive and expensive but looks incredible.

Nantucket, Tustin & 36th Street Newport: We have officially gone full cycle on our first two deals in our fund. These projects generated annualized returns of 21.8% and 28.3%.

Not too shabby.

Thanks again for reading, and I would like to thank our agents and property managers who provide valuable insights from their day-to-day in the field. Without them, this email wouldn't be very useful or interesting.

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