Economic Update (Monday, August 9, 2021)
Economic Update
(Monday, August 8, 2021)
One of the residual effects of our overheated housing market is the enormous runup of homeowners’ equities.?For example, ATTOM Data Services just released its second-quarter 2021 “Home Equity & Underwater Report,” which shows that 34.4 percent of mortgaged residential properties in the United States were considered “Equity-Rich” in the second quarter. (Equity Rich means that the combined estimated amount of loans secured by those properties was no more than 50 percent of their estimated market value.)?Even better, equity-rich homes were up from 31.2 percent in the first quarter of 2021 and up from 27.5 percent in the second quarter of 2020 (Los Angeles is up 57.9%).?The report also shows that only 4.1 percent of mortgaged homes were considered seriously underwater (“negative equity”) in the second quarter of 2021. In other words, the balance of loans secured by the property was at least 25 percent more than the property’s estimated market value.?That was down from 5.2 percent in the prior quarter and 6.2 percent from a year ago.?Ongoing price runups have boosted equity because the increases have widened the gap between what homeowners owe on their mortgages and the value of their properties.?Home prices have continued rising over the past year as rock-bottom interest rates and a desire to escape virus-prone areas have led to a surge of home buyers. And, as you know, those buyers have been chasing a declining supply of properties for sale throughout the past year, resulting in elevated demand and soaring values.?So, let’s celebrate our newly found equity by getting vaccinated (if you haven’t already), putting on our facemasks (yes, again), and checking out the latest real estate news…
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Unemployment Sinks to 5.4%.?The U.S. created a robust 943,000 jobs in July, a sign our economic recovery is gaining steam and withstanding the latest assault from the highly contagious Delta variant.?The increase in hiring last month — the biggest in nearly a year — easily exceeded Wall Street’s estimate, which is great news for all of us.?(Economists polled by The Wall Street Journal had forecast 845,000 new jobs.)?Privately owned businesses added 703,000 employees last month, mostly at restaurants, hotels and other providers of leisure and entertainment.?Government payrolls also rose by 240,000, making the strong gain in employment last month look a bit better than it really was. The increase largely reflects seasonal swings in education whose ups and downs have been exaggerated by the pandemic.?In more good news, the Bureau of Labor Statistics also reports that the unemployment rate fell sharply to a fresh pandemic low of 5.4% (from 5.9% in June). Yet the official rate likely under-estimates true unemployment by two to three percentage points, economists say.?More encouraging, the percentage of people either working or looking for work rose a tick to 61.7% in July. This so-called “Labor Force Participation Rate” has been depressed since last summer with?millions of previously employed Americans still missing from the workplace.?But economists predict more people will rejoin the labor force in the fall after (a) schools reopen, and (b) extra federal benefits put in place during the pandemic expire. However, keep in mind, employment is still 5.7 million below its level in February 2020, before the pandemic came to the United States.?It is this lack of labor that is partly holding back an otherwise robust U.S. economic recovery.??
Delta Variant Poses Fresh Threat to Economy. Restaurants, hotels and theme parks are doing tons of business after the full reopening of the U.S. economy, but they face a new challenge from the delta variant even as they scramble to cope with widespread labor and supply shortages.?A survey of service-oriented businesses rose to record 64.1% in July from 60.1% in the prior month, the Institute for Supply Management reports.?(Any reading above 50% signals expansion, and numbers above 60% are exceptional.) Companies that provide services such as dining, accommodations, entertainment and leisure finally saw a sense of normalcy in the spring and early summer as more people got vaccinated and coronavirus cases shrank. These businesses suffered greatly early in the pandemic.?Yet the sudden explosion in new delta cases is causing fresh strains on their business. Governments are reinstituting new mask requirements and some locales are requiring businesses to check customers for vaccination cards.?The good news is that the virus is not as dangerous given the millions of vaccinated Americans and companies have learned how to cope with the pandemic. The delta variant probably won’t deal a severe blow to our economy unless caseloads go a lot higher.?New orders and the level of production rose again in July and were near all-time highs. The survey goes back to 1998, when the service sector was not as large as it is now. Employment also turned positive again after a negative reading in June. Companies have offered higher pay, bonuses or other benefits to try to attract more workers. Some companies have so much business they have to turn customers away because they are short-staffed. Millions of people who lost their jobs during the pandemic or left on their own still haven’t returned.?Getting supplies on time and at reasonable prices is another problem. Businesses have had to pay more for materials and they’ve passed some of the cost on to customers.?The result: A steep increase in inflation this year. Rising prices pose another threat to the economy recovery because inflation erodes the buying power of U.S. households. Our economy is literally bursting at the seams, as demand is as strong as I have ever seen it and supply is struggling to catch up.
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California's Eviction Moratorium is Good Through September. Despite the confusion over the CDC’s eviction moratorium extension last week, here's the situation in California.?Gov. Newsom signed a law on June 28 extending the state's eviction moratorium through Sept. 30. This is the third time the state has extended the moratorium. Newsom has said a fourth extension is unlikely, although with the Recall in sight, he may be pressured to extend again.?In the interim, California will pay off 100% of eligible tenants' unpaid rent from April 2020 through Sept. 30, 2021. To be eligible, tenants must earn 80% or less of the area median income, an amount that varies depending on where they live. The money - $5.2 billion - comes from the federal government.?So far, nearly 113,000 people have requested more than $1 billion in relief. The state has paid more than $178 million as of July 20.?People who are not eligible to get the money can still qualify for the eviction ban if they pay at least 25% of what they owe by Sept. 30. Landlords could take these tenants to court to recoup that money, but they cannot evict them for it.?Tenants are protected from evictions through Sept. 30. After that date, if a landlord tries to evict someone, the tenant will have 14 days to apply for rental assistance. If the tenant refuses to apply or is denied eligibility and has not paid at least 25% of what is owed by Sept. 30, the tenant can be evicted.?California still allows evictions right now for reasons other than unpaid rent, including (1) breaking the lease agreement, (2) damaging the property, or (3) using the property to do something illegal. California's major population centers, including Los Angeles and the San Francisco Bay Area, have some of the most expensive rental prices in the country. In June, the median monthly rent was $2,801 in San Francisco and $2,690 in Los Angeles, according to data from?Realtor.com. The prices are driven by a housing shortage in the nation's most populous state, with nearly 40 million residents.?California already has the largest homeless population in the country, with most of them in Los Angeles County. Combined with a housing shortage and expensive rents, ending eviction moratoriums could force a tidal wave of evictions.
Nishiyama Residence/Otomisan Japanese Restaurant.?On Thursday, August 5, 2021, the Los Angeles Cultural Heritage Commission will vote to recommend the Historic-Cultural Monument (“HCM”) designation of the Nishiyama Residence/Otomisan Japanese Restaurant.?The historic property located at 2504-2508 East First Street consists of a Queen Anne-style residence and commercial building, significant for its association with early Japanese American settlements in Boyle Heights and commercial development along the East First Street streetcar line in the 1920s.?In 1925, Ryohei Nishiyama moved the residence to the rear of the lot and constructed the commercial building in front, leasing it to a Japanese-operated grocery store and later a Japanese-operated florist shop and barbershop. In the 1950s, the grocery store was converted to a food establishment and in 1956 Otemo Sushi Café (now called “Otomisan Japanese Restaurant”) opened in the easternmost storefront.?Today, Otomisan is the last remaining Japanese restaurant in the neighborhood and is believed to be the oldest continuously operating Japanese restaurants in Los Angeles.?In 2020, the Conservancy partnered with Boyle Heights Community Partners to submit the HCM nomination. Now they need your help!?Voice your support for Nishiyima Residence Otomisan Japanese Restaurant.?Please submit an email of support for the nomination to the Cultural Heritage Commission:
Billionaires Can’t Find Homes in Palm Beach.?You think the real estate market is wild in Los Angeles, consider Palm Beach.?There are only 2,500 homes total in Palm Beach, a small oceanfront town in South Florida known for its extraordinarily wealthy residents —?at least 48 billionaires have homes there, including Charles Bronfman, Stephen Ross, and a bevy of Kochs. Right now there are only 31 properties listed for sale, with 15 of them listed over $20 million. And, of course, nobody would be caught dead buying a home for less than $20 million in Palm Beach.?Since the pandemic, and since several major hedge funds have relocated their offices to the town (not to mention those interested in flocking to the de facto home of former president Donald Trump), there’s been a massive onslaught of buyers. Per property records, there have been 22 sales over $40 million in Palm Beach County?since March—?and 35 over $30 million, a 177.8 percent spike in luxury sales compared with the same quarter last year. Longtime Palm Beach?real-estate agent Linda Olsson, who specializes in luxury homes (“$100 million and under properties,” she likes to joke) focuses on the “very high end.”?The prices here are unprecedented.?According to Olsson, high net worth individuals in New York, New Jersey, and California are being taxed too much, so they’re all beelining here.?For instance, a lot that sold two years ago for $7 million is now priced over $12 million.?Olsson just sold a house for $17 million that’s not even on the water. Seventeen million used to be a waterfront price.?Olsson’s selling another house just down the street from that one, but the current owners are staying there until May.?They’re selling it for $17 million, but the buyer said they’d pay $20 if the sellers would move out now. The owner responded, “The extra few million isn’t going to change my life. My wife wants to stay here so the answer is NO.” Olsson says a?little condo she just sold on the ocean — only 1,600 square feet —?went for $3.6 million. She reports that a small condo that just came up had 18 showings the first day and 10 offers. And who gets it? Typically, someone that pays over asking price, and who has no inspection.?And then there are the billionaires buying without even seeing the properties. Olsson just did three of those. These buyers do it over the phone.?She sold one to a person in London. A lady from Texas never even bothered to come to Palm Beach.?She just said “I’ll take it.”?A lot of people are worried that if they fly down they’re going to miss it while they’re in the air!?A lot of the people coming are bankers. Hedge-fund people. Goldman people. Morgan Stanley. Hilfiger owns here. Wellington, Bill Gates and his children, Bloomberg and his children.?Lots of billionaires, but celebrities are less common, she says.
LA Convention Center Turns 50. Five decades ago, Charles Luckman, a developer and architect (whose portfolio includes The Fabulous Forum in Inglewood and New York City’s Madison Square Garden) designed and built the Los Angeles Convention Center in the area south of 6th Street, east of the 110 Freeway and north of the 10. The expansive $41.8 million civic project had been in the works for three decades before it finally opened 50 years ago this month.?At the time, its location was a controversial decision. But it was built with one goal in mind: to spur growth in the downtrodden southern corner of downtown — an area dominated by warehouses and parking lots.?And in that respect, it has become spectacularly successful!?An entirely new neighborhood, today known as “South Park,” eventually sprung up. High-rise residential towers and dozens of new hotels now line the blocks sprawling east and north from the Convention Center.?In 1996, the Convention Center completed a multi-million dollar expansion, but was still unable to fill its halls and was left with construction debt that required $20 million a year in taxpayer subsidies.?At that point, in stepped the Anschutz Entertainment Group (“AEG”).?AEG developed and built the Staples Center, adjoining the Convention Center, which opened in the fall of 1999.?Staples became home to not only the Kings but also the Los Angeles Lakers and Los Angeles Clippers. It would accomplish what the Convention Center could not on its own.?The properties finally started making money.?Today, the arena draws 4 million visitors a year, compared to the Convention Center’s 2.7 million.?That’s not to say the Convention Center doesn’t do its part.?Conventions bring hotel guests and restaurant guests.?The Convention Center can be credited with the construction of more than a handful of South Park’s new hotels, and more are on the way.?Since 2005, the Los Angeles City Council has given more than $797 million in taxpayer subsidies to the developers of eight hotels.?AEG, which also built the booming $2.5 billion “L.A. Live” complex next to Staples Center, took over operations of the Convention Center from the city in 2013, promising to reduce operating costs.?In 2018-19, before the pandemic hit and totally upended revenue streams, the Convention Center generated an operating profit of $8.3 million, of which $4.9 million went to the city.?As L.A. boosters mark the Convention Center’s golden anniversary, plans are also moving ahead on a $1.2 billion expansion designed to secure the venue’s future in an increasingly competitive convention market.?Happy 50th LACC!??
Meet the Two Real Estate Guys on California's Recall Ballot. ?Although I am NOT in favor of recalls and believe that Newson should finish his term as Governor, it is interesting nonetheless to discuss the two real estate professionals who qualified to run for governor.?David Bramante (R) and Kevin Paffrath (D) both made the ballot, and they are now campaigning for the chance to run California.
David Bramante
Between running two businesses and helping raise three kids,?David Bramante, team leader of The Bramante Group at?Douglas Elliman, has never had time to follow sports teams. Instead, he says, he’s an active spectator of politics.?After an initial stint in art school, Bramante ultimately transitioned into studying political science and journalism at UCLA. In recent years, he started thinking more and more about running for local office.?But once the pandemic hit and he saw how much it impacted his own businesses (as well as those of the people around him), he felt like it was time to get involved and start coming up with solutions.?In addition to getting California’s economy back on track by ending the state’s current state of emergency, Bramante says some of his primary goals?as governor will be bringing together both sides of the aisle for conversations and healing, and enabling more robust personal liberties.?Speaking about running his campaign, Bramante says a lot of his experience with cold calling and rejections as a Realtor have come in handy so far.?He’s also looking to draw on his experience as a developer in addressing California’s housing crisis, and is seeking feedback from other real estate professionals.?“There’s things like?ADUs?[accessory dwelling units], and that’s opened up a lot of real estate for people and helped with affordability, but on the flip side, some people that have a home don’t necessarily want a duplex next door.”?
Kevin Paffrath
Kevin Paffrath?is putting his name in the hat for governor out of sheer necessity, “Because things like housing, homelessness, crime, schools and traffic are all basically things that make California the embarrassment of the country, when in the reality, we should be the example for the country." Paffrath, who studied economics and political science at UCLA, got into real estate investing?as a teenager when he observed the parents of his future wife, Lauren, sell and manage properties. Paffrath ended up getting his real estate license as a freshman in college, and the couple ultimately started their own investment company. Kevin is largely in charge of identifying and purchasing houses ripe for investment, while Lauren handles the design and renovation decisions and manages their rental properties.?In 2018, Kevin started a YouTube channel, “Meet Kevin,” where he shares video commentary on the market, investing advice, and real estate tips.?He now has over 1.5 million subscribers on YouTube, which helped him gain a fair amount of attention in the media, from outlets like?The New York Times, CNBC, and Forbes.?Paffrath’s got ideas for how to address California’s affordable housing?and homelessness crises, largely by streamlining building and safety standards so that architects and builders can get jobs approved more quickly and generate more housing.?
Osama Bin Laden’s Brother Finally Lists Bel Air Estate For Sale.?Now here’s a “killer” deal!?The Bel Air mansion owned by Osama Bin Laden’s half-brother, Ibrahim Bin Laden, has been listed for $28,000,000, according to Dirt.com. The property has sat vacant for 20 years (since the September 11 attacks), but was finally listed last Wednesday.?Coldwell Banker’s Florence Mattar, the listing agent of the property, confirms that Bin Laden is the owner, saying “you can check the title: Ibrahim Bin Laden.”?Property records show the seven-bedroom, five-bathroom house was built in 1931 and sits on 2.16 acres down the street from Hotel Bel Air. The structure was designed in the Mediterranean Revival style, but 20 years of abandonment have taken their toll. Photos of the property show large swathes of brown grass and dirt patches, broken walkway tiles and stone banisters, and a dried, neglected fountain. Photos of a sparkling, filled-in pool appear to be Photoshopped. No photos of the interiors are currently available, but you can imagine the insides in need of a serious rehab.?The Bin-Laden family emigrated from Yemen to Saudi Arabia in the early 20th century. They amassed great wealth after starting a construction company that landed major contracts including military bases and major renovations to the al-Haram Mosque in Mecca.?Ibrahim Bin Laden came to Los Angeles to attend USC, according to Steven Coll’s “The Bin Ladens: An Arabian Family in the American Century.”?In the mid-1980s, he met and married Christine Hartunian, the daughter of a wealthy Armenian businessman in Orange County, through his friend Dodi Fayed (yes, Princess Diana’s one-time beau). Bin Laden bought the Bel Air home in 1983 for $1.6 million, and lived there with Christine and their daughter until they divorced in 1991.?Today, the empty 7,106-square-foot home pales in comparison to the properties surrounding it. Bin Laden’s immediate neighbors are Beny Alagem (owner of the Beverly Hills Hotel) and his 36,000-square-foot manse, as well as Jeffrey Kaplan (who reportedly owns several mobile home parks) and his 43,000-square-foot estate. It’s safe to assume that whoever buys the Bin Laden property will knock it down and build a much larger home on the grounds.
LAREIC’s August Meeting.?Our August general meeting will take virtually on Thursday night, August 12, 2021, 7:30 pm to 9:30 pm.?Our meeting will feature Max Keller, visiting us virtually from Dallas, Texas.?The title of Max’s presentation is “How to Survive the Real Estate Disruption.”?Don’t miss Max’s presentation.?Free admission, free parking (in your garage), and free refreshments (whatever’s in your refrigerator). Please RSVP at LAREIC.com (to receive your Zoom Meeting ID and passcode).?
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Vendors Expo Returns!?In an abundance of caution, we have moved our world-famous "Real Estate Vendors Expo"?from September 9th to Thursday night, October 14, 2021. The Vendor Expo will be open from 6:30 to 8:00 pm (before the beginning of our general meeting at 7:30 pm). We'll have a collection of over 40 of the finest vendors with all of the real estate services you will need to become a successful investor.
Annual Los Angeles Real Estate Grand Expo.?We are very excited to announce the return of the Annual Los Angeles Real Estate Grand Expo.?Our Grand Expo will be on?Sunday, October 31, 2021?(Halloween day), 9:00 am to 6:00 pm, at the spectacularly beautiful Skirball Cultural Center.?The theme of this year’s Grand Expo will be “How to Invest in a Post-Pandemic World.”?Our Grand Expo will be presented by the Los Angeles Real Estate Investors Club, Sam’s Real Estate Club, and Realty 411.?At our last Grand Expo (2019), we had over 800 investors, 64 vendors, and 12 national speakers!?It was the largest real estate investor event in Southern California!?And this year it will be even BIGGER!?An entire day celebrating real estate investing and you can be part of it.?There will be twelve national guest speakers (in three breakout rooms) and a Vendor Expo area (the size of TWO basketball courts!).?Best of all, the Grand Expo will be FREE to attend and parking will also be FREE.?Plus, there is no traffic on a Sunday so the Skirball Center will be very easy to access!?This Expo is going to be big, very BIG!?You can RSVP and see a partial list of speakers on our website: LAGrandExpo.com.?
?Weekly “Rubbing Elbows” Podcast.?LAREIC proudly hosts a weekly podcasts, “Rubbing Elbows” staring our Director of Acquisitions, Chuck Dorfman, and his co-host, Lior Yehuda.?Every Thursday live at 8:00 pm (and streaming anytime thereafter), Chuck and Lior interview real estate professionals sharing their insights and advice.?Its real estate uncensored and unfiltered.?These guys may be unorthodox, but they know what they’re talking about.?You can enjoy “Rubbing Elbows” wherever you view podcasts (i.e. YouTube, Facebook, Google, Apple) and LAREIC.com/RubbingElbows.??
This Week. Looking ahead, investors will closely watch Covid case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy (i.e. interest rates and bond purchases).?Beyond that, the JOLTS report, which measures job openings and labor turnover rates, will come out today (8/9). The Consumer Price Index (“CPI”) will be released on Wednesday (8/11).?CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.?On Friday (8/13), the University of Michigan reports its Consumer Sentiment Index for August
Weekly Changes:
10-year Treasuries:???????????Rose 005 bps
Down Jones Average:????????Rose 300 points
NASDAQ:???????????????????????????Rose 200 points
Calendar:
Monday, 8/9:????????????JOLTS
Wednesday, 8/11:???Consumer Price Index
Friday, 8/13:?????????????Import Prices
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For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club, LLC
310-409-8310