Economic Update (Happy Thanksgiving)
Despite the current hesitancy of workers to return to the office, CBRE survey of companies all agreed that a return to office life is inevitable, and a year from now offices will be filling up faster than we anticipate. It will look different, with offices filled to 65- 80% of pre-pandemic levels on any given day. There will be more separation between employees and more collaborative workspaces, but the bottom line is that companies have come to realize the importance and value of having employees collaborate together in an office, and employees themselves will follow suit due to a fear of missing out. Though a hybrid work-from-home model will likely be the future for many companies, research conducted by CBRE indicates that “most companies want their employees to come into the office at least 2.5 days a week, if not more. The smaller the company, the higher the expectation they have that people will come to the office all the time.”?So with offices slowly returning to normal, let’s check out the other real estate news of the this shortened holiday week.
Housing Starts Declined 0.7% in October. ?Housing starts declined 0.7% in October to a 1.520 million annualized rate.?Starts are up 0.4% versus a year ago. ?The drop in October was entirely due to single-family starts. Multi-family starts rose in October.?In the past year, single-family starts are down 10.6% while multi-unit starts are up 36.6%.??Since emerging from the initial collapse in construction activity early in the pandemic, housing starts have averaged a 1.550 million annual rate, and starts in October remained roughly at that average, although 0.7% lower than in September.?Builders continue to deal with ongoing issues surrounding supply chains and shortages of labor that are holding back a broader upswing in activity. Looking at the details, all of the decline in October came from the single-family sector, where activity fell 3.9%.?Meanwhile, multi-family construction rose 7.1%.?Notably, in the past year multi-family starts are up 36.6% while single-family starts have fallen 10.6%.?It looks like developers may be shifting some resources away from single-family home construction and toward larger apartment buildings in response to rapidly rising rents as some people move back into big cities and the eviction moratorium ends.?Zillow estimates that rental costs for new tenants are up 9.2% in the past year and Apartmentlist estimates they have risen an even faster 15.8%, easily exceeding typical gains in the 3.0 – 4.0% range.?Recent distributional effects aside, housing construction remains healthy.?Looking at the 12-month moving average of overall housing starts to help sift through recent volatility shows residential construction now stands at the fastest pace since 2007.?While the monthly pace of activity will ebb and flow as the recovery continues, expect housing starts to trend upward in the next couple of years.?Builders have a huge number of permitted projects sitting in the pipeline waiting to be started.?In fact, the backlog of projects that have been authorized but not yet started is currently the highest since the series began back in 1999.?Meanwhile, permits for new building projects rose 4.0% in October, demonstrating that builders see even more demand on the horizon.?Keep in mind, the US needs roughly 1.5 million housing starts per year based on population growth and scrappage (voluntary knockdowns, natural disasters, etc.).?However, we haven't built that many new homes in any calendar year since 2006.?With plenty of future building activity in the pipeline, builders looking to boost the inventory of homes and meet consumer demand, and as more Millennials finally enter the housing market, it looks very likely construction in 2021 will cross the 1.5 million unit benchmark this year and then move higher in 2022.
Leading Indicators Point to Acceleration in Economy. The U.S. Leading Economic Indicators Index (“LEI”) jumped 0.9% in October and points toward a pickup in growth toward the end of 2021, the Conference Board reports. "The U.S. LEI rose sharply in October suggesting the current economic expansion will continue into 2022 and may even gain some momentum in the final months of this year," said Ataman Ozyildirim, director of business cycles research at the board. The one caveat: Rising Covid cases in parts of the Northeast and Midwest. That could mar an otherwise strong finish to the year. The leading index had increased just 0.1% in September and 0.7% in August. The LEI is a weighted gauge of 10 indicators designed to signal business-cycle peaks and valleys.
Top Fed Officials Signal Interest-Rate Increases in 2022.?St. Louis Federal Reserve President James Bullard says the central bank might be forced to taper bond purchases and raise interest rates sooner than it had planned.?Several Federal Reserve officials last week indicated the central bank could raise interest rates by the end of 2022 based on the rapid recovery of the economy and an extended bout of high inflation.?The Fed leadership has been split on whether the first-rate hike since the onset of the pandemic would take place in late 2022 or early 2023. Yet Wall Street?has increasingly come to think the Fed will act sooner and top Fed officials also seem more receptive.?Federal Reserve Vice Chairman Richard Clarida repeated his view that the criteria for a rate hike could be met before the end of 2022.?Clarida is seen as close to Chairman Jerome Powell. His comments could be viewed as a sign the top Fed brass might be more open to raising rates sooner than it had planned because of the spike in inflation.?Prices have risen 4.4% in the past year using the Fed’s preferred PCE inflation gauge and an even higher 5.4% based on the better-known Consumer Price Index. And well above the Fed’s 2% average target. ??Clarida stuck to the view, echoed by Powell, that inflation will slow sharply in 2022 to around 2.25% as labor shortages and supply bottlenecks ease.?Bullard also said he thinks the Fed could speed up tapering plans.?Bullard said ongoing supply bottlenecks and “one of the hottest labor markets” since World War Two could keep inflation high through 2022. He predicts the unemployment rate will drop to the 3% range by next year.?The Fed last week announced it would begin to taper, or phase out, its massive purchases of U.S. Treasurys and mortgage-backed securities starting this month. The central bank has been buying $120 billion a month in securities as part of an effort to keep U.S. interest rates low. While the bond purchases helped our economy recover, some Fed critics also contend it’s contributed to the increase in inflation. The U.S. has recovered so rapidly and is growing so strongly that shortages have developed across the economy. These shortages have spawned the big surge in inflation.?Bullard has pegged in two interest rate increases before the end of 2022.
Housing Inventory Relief Could Come This Winter. The severely squeezed housing supply could be alleviated as soon as this winter.?About 65% of prospective home sellers plan to list their properties within the next six months, according to a Realtor.com survey of 2,583 consumers conducted in October. Among them, 19% said they had already listed their houses, 10% said they would in the next 30 days and 17% said within the next three months.?The pandemic created a frenzied environment?for buyers and delayed timelines for would-be sellers. Now, it appears homeowners looking to move are readying themselves to take that next step, according to George Ratiu, manager of economic research for Realtor.com.?Of the potential sellers, 93% have already actively taken some of the necessary steps toward listing their home. Most commonly, 36% either researched their own home value, values in their neighborhood and started making repairs or decluttered. Just behind, 34% of surveyees researched selling requirements or searched for a new home to buy. Both market conditions and the extended time spent at home pushed sellers into action. A 37% share said their property no longer meets their family’s needs, while 35% are motivated by potential profits to be made. Just behind, 33% want different features than what they currently live in and about 32% said they want to move closer to friends and family.?For those holding tight, 28% pointed to the lack of inventory and not being able to find another home in their price range if they sold. Behind that, 25% cited wariness of making a big change in the current economic climate and 24% didn’t know where they wanted to move.
The 10 Most Expensive ZIP Codes in 2021.?For the fifth straight year, Atherton, California's 94027 has kept the title of most expensive ZIP code in the United States. With a median sale price of $7.47 million, the Bay Area suburb is far and away the priciest place to live in the country in 2021, according to Property Shark, which analyzed residential transactions in the U.S. between Jan. 1, 2021 and Oct. 22, 2021.?Atherton, which is home to NBA champion Steph Curry and former Google CEO Eric Schmidt, saw its median sale value climb 7% year-over-year. That figure is about $2 million higher than runner-up Boston, whose 02199 ZIP code had a median sale value of $5.5 million over the past 11 months.?The 10 priciest ZIP codes all had median sale values of at least $4 million, with six located in California. In fact, of the 127 most expensive ZIP codes in Property Shark's ranking, 70% are located in the Golden State, while 17 are in New York.?These are the 10 most expensive ZIP codes in the country, ranked by median home sale prices:
10. Medina, Washington (98039): Median home sale price in 2021: $4,000,000
9. Los Altos, California (94022): Median home sale price in 2021: $4,052,000
8. Santa Monica, California (90402): Median home sale price in 2021: $4,058,000
7. Santa Barbara, California (93108): Median home sale price in 2021: $4,103,000
6. Beverly Hills, California (90210): Median home sale price in 2021: $4,125,000
5. Miami Beach, Florida (33109): Median home sale price in 2021: $4,475,000
4. Ross, California (94957): Median home sale price in 2021: $4,583,000
3. Sagaponack, New York (11962): Median home sale price in 2021: $5,000,000
2. Boston, Massachusetts (02199): Median home sale price in 2021: $5,556,000
1. Atherton, California (94027): Median home sale price in 2021: $7,475,000
Lady Gaga Sells Historic Frank Zappa Estate. Lady Gaga has quietly sold her Laurel Canyon compound, which was formerly owned by experimental rock musician Frank Zappa,?Los Angeles?Magazine reports.?Gaga sold it for $6.45 million after originally purchasing the eccentric 6,700-square-foot estate for $5.25 million in 2016. The Grammy winning superstar sold the historic property (which includes a quasi-Tudor style main house with seven bedrooms, six bathrooms, two guest cottages, a swimming pool, and rooftop tennis court) in August to an undisclosed buyer, according to public records.?Zappa purchased the property in the 1960s for roughly $75,000, where he lived, recorded much of his classic work, and raised his family until his death in 1993.?The whimsical estate features the “Vault”—a climate-controlled space where Zappa kept a secret collection of music, film recordings and family archives— as well as the recording studio and rehearsal space where he recorded many of the 60 albums from his extensive catalog. Gaga recorded hits of her own in that studio including her 2020?Chromatica?album. Other quirky amenities at the property include a double-height art gallery, gardens that feature “one-of-a-kind mosaic art,” and “porthole windows and doors salvaged from vintage submarines.”
Adele Says She Moved to Los Angeles Because She Couldn’t Afford London Real Estate. If you think Los Angeles is expensive, listen to Adele complain about London. While Adele relocated from London to Los Angeles years ago, she opened up in a recent interview with British Vogue that a main motivator for the move was pricey real estate.?In Adele's interview with Giles Hattersley for the British and US Vogue November 2021 issues, the singer said one of the key reasons she, her ex-husband Simon Konecki, and their 9-year-old Angelo, relocated was to improve their quality of life.?In London, she said that most of her time was "in a car or inside a building" and that she wanted to be in a place where there was "fresh air and somewhere I could see the sky."?The singer landed in LA, adding that "the kind of house I have in LA I could never afford in London. Ever."?But data on housing prices suggests the cost of homes is actually higher in LA than in London. According?to the Office for National Statistics?cited by the ?Guardian, the average house price in London reached ￡514,000 (or about $701,509) ?— the highest it's ever been — last November. Meanwhile, the median home price in Los Angeles County was $775,000 this May, according to the data firm DQNews.?Hattersley questioned Adele's statement, but Adele stood by it. "No, I looked at houses. It's like hundreds of millions of pounds. I don't have that much money at all. I'd throw up," she said.?Adele owns three mansions next door to one another in LA. The homes have a British cottage vibe and together cost about $30 million, according to The New York Post.?In 2016, she purchased her first LA home for $9.5 million. ?Since then, she's purchased two more homes, each costing an estimated $10 million. Konecki lives in one of the homes, so the family could stay together for their son Angelo after their divorce in 2019, Adele said in the interview.?
Vendors Expo Returns!?Our world-famous super-duper "Real Estate Vendors Expo"?returns on Thursday night,?December 2, 2021 (one week earlier because of the holidays). The Vendor Expo will be open starting at 6:30 pm. We'll have a collection of 40+ of the finest vendors featuring real estate products and services you will need to become a successful investor. Our Vendor Expo will be held in the Grand Ballroom (2nd floor) in the Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission.?Self-parking across the street at the Luskin Conference Center ($10).?Please RSVP at www.LAREIC.com.
December General Meeting.?Our December holiday meeting will be held on Thursday night, December 2, 2021 (one week earlier because of the holidays).?And we have a very special guest to celebrate.?Jason Porter will be visiting us from Las Vegas, Nevada.?Jason is an author, investor, and the nation’s leading authority on tax deeds. If you want to buy properties cheaply and quickly, forget wholesaling.?You want to invest in tax deeds.?Don’t miss Jason’s presentation to learn how.?Our meeting will be held in the Grand Ballroom (2nd floor), Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission. Self-parking across the street at the Luskin Conference Center ($10). Please RSVP at www.LAREIC.com.?
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This Week.?Looking ahead, investors will be seeking hints from Fed officials about the timing for future rate hikes and will closely watch Covid case counts around the world. Beyond that, Existing Home Sales will be released today (11/22) and New Home Sales on Wednesday (11/24). The core PCE price index, the inflation indicator favored by the Fed, also will come out on Wednesday (11/24). Mortgage markets will be closed on Thursday and will close early at 2:00 et on Friday for Thanksgiving.?
Weekly Changes:
10-year Treasuries:????????????Fell ?????005 bps
Dow Jones:??????????????????????????Fell?????400 points
NASDAQ:?????????????????????????????Rose???200 points
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Calendar:
Monday (11/22):??????????????????Existing Sales??????????????????????
Wednesday (11/24):???????????New Home Sales????????????????
Wednesday (11/24):???????????CORE PCE??????????????????????????
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For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club
310-409-8310
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