Economic Update (Monday, December 13, 2021)
Economic Update
(Monday, December 13, 2021)
Is there an economic term that strikes more fear into the hearts of consumers than “inflation”??Probably not. When inflation is rising even modestly, it becomes Topic A in the press, on cable news and at dinner tables.?Inflation is commonly regarded as a ravager of family budgets, a destroyer of political fortunes, and a pain to wage-earners. At the moment, we’re experiencing more than a mere hint of inflation. The Bureau of Labor Statistics reported that prices in November rose a shocking 6.8%,?the largest 12-month increase in more than 30 years, or since November 1990 (see article below). Core inflation — absent food and energy — rose 4.9% over the last 12 months, the largest such increase since August 1991.?But inflation is an inherently complicated subject — its causes are tangled, its effects variable. Consequently, it lends itself to confusion and misunderstanding.?Not every consumer is affected by inflation in the same way; for some it’s even a blessing, particularly if you own real estate.?It depends on what people treat as crucial purchases for the near term, on what they can defer or forgo entirely, and on the source of their income. If your wages are rising faster than the cost of your market basket, you may even regard inflation as your friend.?Some inflation is benign, even desirable. That’s because inflation stems from economic growth and improving productivity. It also provides a cushion against “deflation” (a destructive phenomenon because it prompts consumers to hoard money and delay purchases in anticipation of lower prices, thus aggravating economic downturns.)?So with inflation on everyone’s mind, let’s dig into the details…
U.S. Inflation Rate Swells to 39-Year High of 6.8%.?The cost of living climbed again in November and drove the rate of U.S. inflation to a nearly 40-year of 6.8%.?This certainly puts more pressure on households as they confront rising prices of gas, food, cars, rent and so forth.?The Consumer Price Index increased 0.8% last month, the U.S. Bureau of Labor Statistics said Friday. The pace of inflation over the past year escalated to 6.8% from 6.2% in the prior month. That’s more than triple the Federal Reserve’s 2% target and is the highest rate since July 1982! Yikes!?This string of higher-than-expected inflation readings since the summer is likely to push the Fed to speed up plans to phase out stimulus for our economy by the early spring (several months earlier than it had planned). Worried about the economic and political consequences, the White House has also moved to try to help untangle knots in the U.S. supply chain that are contributing to high inflation. Many goods and materials are in short supply and prices have risen as a result. Another closely watched measure of inflation that omits volatile food and energy costs jumped 0.5% last month. This so-called “Core Rate” is closely followed by economists as a more accurate measure of underlying inflation. The 12-month increase in the Core Rate climbed to 4.9% from 4.6% and remains at a 30-year peak. The last time the core rate reached 5% was in mid-1991. Soaring inflation is outstripping the biggest increase in worker wages in decades. Inflation-adjusted hourly pay was 1.9% lower in November compared to a year ago. Paychecks aren’t buying as much as they used to buy.?The stunning surge in U.S. prices this year could peak in the next few months as supply-chain bottlenecks are gradually undone, but high inflation is likely to last well into 2022.?Rents are moving up again, for one thing.?Rents had been relatively stable during the pandemic, but they have risen 3% in the past year and are likely to keep climbing. Shelter is the biggest expense for most households.
U.S. Home Prices Hit Another Record High.?Home prices in the U.S. hit a record high last week. Again.?While the median price in L.A. County has reached $800,000, the median price in the United States was $360,250 in the four-week period ending Dec. 5, according to a report from our friends at Redfin. That’s up 14% year over year and 30% compared to the same period in 2019.?At the same time, many potential buyers may already be on a holiday break.?Homebuying demand seems to be returning to a slowdown trend that we’d typically expect to see in the last few weeks of the year. Despite that slowdown, prices are set to stay on an upward trajectory, at least for now.?A lot of uncertainty remains in our economy—from inflation, jobs and wages to how the Fed reacts to those factors. Amid all this economic uncertainty, the notion that home prices will continue to grow in the near-term feels relatively certain.?Meanwhile, new listings bounced back from a dip the week of the Thanksgiving holiday, according to a separate report from Realtor.com.?New listings were down 1% year over year, compared to the 12% decline registered in the holiday week, according to the report.?Active inventory remains low, down 26% compared to the same time in 2020, according to the report. Nevertheless, the average home sold nine days faster than it did at this point last year.?
Foreclosure Activity Declines. ATTOM released its November 2021 “U.S. Foreclosure Market Report” which shows there were a total of 19,479 properties with foreclosure filings?in the United States (i.e. default notices, scheduled auctions or bank repossessions). The 7th?consecutive month of annual increases.?“After an initial surge following the end of the government’s moratorium, it appears that foreclosure activity may be slowing down as we move towards the end of the year,” said Rick Sharga, executive vice president of RealtyTrac. “Despite concerns about a pandemic-driven wave of defaults, mortgage delinquency rates and foreclosure starts have continued to decline due to government and industry programs, and a recovering U.S. economy.”?Nationwide one in every 7,055 housing units had a foreclosure filing in November 2021. States with the highest foreclosure rates were Illinois (one in every 3,187 housing units with a foreclosure filing); Florida (one in every 3,319 housing units); Ohio (one in every 3,669 housing units); Delaware (one in every 3,800 housing units); and New Jersey (one in every 4,096 housing units).?Lenders started the foreclosure process on 10,471 U.S. properties in November 2021, down 3 percent from last month.?Those major metropolitan areas with a population greater than 200,000 that had the greatest number of foreclosure starts in November include: New York (664 foreclosure starts percent); Miami, FL (494 foreclosure starts); and our very own Los Angeles (441 foreclosure starts).?Lenders repossessed 2,292 properties through completed foreclosures (REOs) in November 2021, down 24 percent from last month, the first monthly decrease since May 2021 but up 14 percent from last year.
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60 Years Later, Abandoned Homes on 710 Freeway Get New Life.?Six decades after California transportation officials began seizing hundreds of properties for a freeway project that never came, Los Angeles leaders have finally unveiled a proposal?to replace the decaying vacant homes and dirt-filled lots in the El Sereno neighborhood with new parks and housing.?If the plan comes to fruition, it would be a major step forward in the saga involving the curtailed 710 Freeway, which hit a wall of opposition before it could stretch into wealthier communities.?The?Eastside neighborhood has long borne the most visible and lasting scars of the abandoned project, with a high concentration of derelict homes left in its wake. As the COVID-19 pandemic hit, activists repeatedly tried to take over vacant homes in a reaction to the region’s affordable housing crisis.?The city’s proposal is just one part of what remains a lengthy process to end the disruption in El Sereno and neighboring South Pasadena and Pasadena that began in the 1950s. Back then, the communities were in the pathway of what was to be the final connection in the 710 Freeway that stretches from the region’s commercial ports in Long Beach through the San Gabriel Valley. But litigation and political pushback blocked construction and the project was finally officially killed three years ago, leaving a 4?-mile gap in the freeway between Alhambra and Pasadena.?Left in limbo were hundreds of homes acquired by the California Department of Transportation, ranging from modest residences in El Sereno to Craftsman mansions on stately streets in South Pasadena. The city’s plan would turn crumbling empty houses and fenced-off parcels that are sprinkled amid the tidy bungalows and small apartment complexes in El Sereno into 252 new or rehabilitated homes or apartments alongside pocket parks and short hillside trails.?All the housing would be for low- or middle-income tenants or homeowners. Helping out is a requirement that the state sell the properties at their original purchase prices from the 1960s. So some parcels that could be worth hundreds of thousands of dollars on the open market will be offered for around $30,000. The city has set aside $2.5 million for 77 vacant homes and lots in El Sereno.?Caltrans officials expect to begin selling off the properties next year.?A group representing about 400 families living in Caltrans-owned housing along the 710 corridor is planning to create a community cooperative that also wants to take control of the properties.
Zillow Hit With Multiple Shareholder Lawsuits.?No less than six weeks after glowing forecasts about its ibuying program, Zillow said it was?shutting down?the program responsible for the majority of the company’s revenue and operating expenses. Zillow CEO Rich Barton stated Zillow’s price forecasting model was too volatile. A pair of lawsuits on behalf of Zillow investors cite rosy claims in 2021 by Barton and Allen Parker, the company's chief financial officer – as illegally misleading investors.?Zillow had a market value of $48 billion on February 10th following a company earnings report; its market cap had fallen to only $13.8 billion at the close of?Nasdaq?trading last week.?But the Zillow lawsuits raise the question of whether executive’s upbeat pronouncements were not mere self-promotion but “materially false and/or misleading statements” in violation of the federal Securities Exchange Act.?The first shareholder lawsuit was lodged Nov. 16 in federal court in Seattle on behalf of Dibakur Barua, and the proposed class action does not describe who Barua is other than someone who “purchased or otherwise acquired Zillow securities between February 10, 2021, and November 2, 2021.”?The second lawsuit was filed Nov. 19 in Seattle federal court on behalf of Zillow investor Steve Silverberg. The Silverberg lawsuit also proposes a class action to collect monetary damages on behalf of plaintiffs who bought Zillow stock between Feb. 10 and Nov. 2. Other lawyers, meanwhile, are on the hunt to find a plaintiff so they too can file a lawsuit of their own against Zillow. A New York law firm,?Brager Eagel & Squire, fired off a press release Monday that it “encourages investors to contact the firm.”
Who Killed L.A.’s Redcars? That’s the name we gave to the electric-streetcar system, debuted in 1901, that included red inter-city electric streetcars and yellow intra-urban streetcars in central LA. A few private transit undertakings had varyingly formed, re-formed, gone bankrupt, been taken over or combined since the late 19th century, using cable cars, horse-drawn cars, funiculars, electric trolleys — all manner of movable systems. What would become the streetcar system ran these mixed means of motion throughout the L.A. core and nearby suburbs before the company was sold to Henry Huntington in 1898.?By 1910, the Red Cars reached into four counties: L.A., Riverside, San Bernardino and Orange, on nearly 1,200 miles of track, more than twice what Metrolink operates today. Yet it wasn’t technically a public transit system at all. The public rode it, but the public (meaning any government agency) didn’t own or operate it.?In its glory years, it ran?from the San Fernando Valley to Long Beach and the amusements?of Balboa Island in Orange County, from Santa Monica to Riverside and San Bernardino counties. At their best, the Red Cars ran at 40 or 50 miles an hour, powered by overhead wires. They were as long as 50 feet, wood and steel, red with golden letters. Their local counterparts, the Yellow Cars, took you through the central city for a nickel. From 1928 into the Depression, you could buy “a day for a dollar” all-day Sunday pass.?But ridership dwindled as cars became more poplar and convenient.?The old Red Car system was sold in the early 1950s to a bus company called Metropolitan Coach Lines, which sent more buses out where electric cars once rolled. And on April 9, 1961, a Sunday, at 3:45 a.m., the last surviving passenger rail line made the run from L.A. to Long Beach, playing its swan song — the characteristic air whistle, two longs, a short and a long. “Replacing the Red Cars will be a fleet of buses,” The Times wrote. As for the intra-urban system, it was sold at the end of World War II to American City Lines, a subsidiary of a Chicago-based company called National City Lines, which was buying up dozens of local transit systems like L.A.’s all across the country, pulling their plugs and putting buses in their place.?The Red Cars were stacked up and sold for scrap, offered for as little as $500 each with no takers. Some were shipped to a second life in Argentina. The last Yellow Car followed them into oblivion in 1963. It was later discovered that Metropolitan Coach Lines, American City Lines and National City Lines were actually owned by a conglomeration of Detroit auto and bus companies, obviously more interested in the success of automobiles and buses than streetcars.?
Four L.A. Freeways Make List of Roads with Most Traffic in U.S.?Have you noticed that traffic has slowly returned to pre-pandemic levels.?Our infamous freeway traffic jams have returned with vengeance!?Congratulations, Los Angeles once again has some of the busiest roads in the U.S. — including the one with the worst gridlock, a new study released Wednesday shows.?Where are they exactly??Glad you asked. Transportation analytics firm INRIX crunched the data and came up with a list of the 25 most congested roads in America (which it included on its 2021 Global Traffic Scorecard.)?Topping the rankings as the WORST road in America is the southbound 5 Freeway (between Euclid Avenue and the 605 Freeway), which has a peak delay of 22 minutes at 4 p.m. The delay costs drivers an average of 89 hours this year, about a dozen hours more than the second busiest highway in New York City.?The eastbound 10 Freeway (between Washington Boulevard and the 110 Freeway) came in 10th place on the list. It had a peak delay of 14 minutes around the 4 o’clock hour, resulting in 55 hours lost for the year.?Right behind that stretch is the northbound 405 Freeway (between Santa Monica Boulevard and Valley Vista Boulevard), which came in at No. 11 in the rankings, although I would certainly rate the worst in the entire universe! The biggest delay on the road was measured at 13 minutes around 4 p.m., costing commuters about 54 hours in 2021.?The final LA-area road to make the list was the southbound 101 Freeway from Santa Monica Boulevard to Alvarado Street, which placed 14th on the list with peak delays of 13 minutes in the 4 p.m. hour. However, drivers who regularly take that stretch at the time lost about 51 hours for the year, hence why it’s lower on the list than the 405.?Although traffic in L.A. and elsewhere has picked up considerably since COVID-19 forced stay-at-home orders in 2020, congestion overall has decreased in the U.S. compared to pre-pandemic levels in 2019, the study found.?Los Angeles actually slid out of the top five most congested urban areas in the U.S., dropping a spot to place sixth in the rankings (must be a clerical error!).?Nevertheless, our notorious gridlock will still end up costing L.A. motorists an average of 62 hours and $968 this year, according to INRIX.
Vendors Expo Returns!?Our world-famous super-duper "Real Estate Vendors Expo"?returns on Thursday night,?January 13, 2022. 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.
January General Meeting.?Our first general meeting of 2022 will be held on Thursday night, January 13, 2022 (after our Vendor Expo).?And we have a very special guest to celebrate.?Seth Phillips is California’s leading authority of Accessory Dwelling Units and the new laws regarding 2-3-4 units on a single-family zoned lot.?If you want to increase your rental income with your properties you must attend Seth’s presentation.?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.??
Weekly “Rubbing Elbows” Podcast.?LAREIC proudly hosts a weekly podcast, “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 follow news on the omicron variant. Beyond that, the next Fed meeting will take place on Wednesday (12/15).?Investors will look for additional guidance on the pace for tapering bond purchases and the timing for future rate hikes. Retail Sales also will be released on Wednesday (12/15). Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key indicator of growth. Housing Starts will come out on Thursday (12/16). The next European Central Bank meeting also will take place on Thursday (12/16).
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?Weekly Changes:
10-year Treasuries:????????????Rose?010 bps
Dow Jones Avg:??????????????????Rose?900 points NASDAQ:????????????????????????????Rose?400 points
Calendar:
Wednesday (12/15):???????????Fed Meeting
Wednesday (12/15):???????????Retail Sales
Thursday (12/16):???????????????Housing Starts
For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club, LLC
310-409-8310