Economic Update (Monday, July 19, 2021)
Economic Update
?(Monday, July 19, 2021)
So far, there hasn’t been any major fires in Southern California (knock on wood).?But don’t start thinking we’re out of the woods just yet.?Although northern California has borne the brunt of wildfires, we still need to stay vigilant. As of this morning, there are 32 fires burning in California and already more acreage has burned this year than last year (and last year was the worst on record).?According to the Los Angeles Times, wildfires have already burned more than 160,000 acres, from soaring mountains along the California-Nevada border to forests north of Mt. Shasta and the gateway to Yosemite. Among the largest fires, the Sugar Fire in Plumas County has grown to 106,000 acres and is 70% contained.?The Lava Fire in Shasta County is at 27,000 acres and is 77% contained.?The River Fire in Madera County is at 9,500 acres, and 36% contained.?The Dixie-Jumbo Fire in Butte County is at 21,500 acres and only 9% contained.?And just this weekend, in case you haven’t heard, the U.S. Forest Service elevated the fire danger level in our very own Angeles National Forest and San Gabriel Mountains from “very high” to “extreme.”?The Angeles National Forest is home to over 700,000 acres of woodlands and dense shrubbery that borders the northern and eastern edges of Los Angeles County.?The Forest Service calls it one of the “driest, most fire-prone areas in the United States,” with human-caused fires becoming larger and more frequent.?So get ready, get vaccinated (if you haven’t yet), put on your face mask (yes, again!), and let’s look under the hood…
Forced Land Sale Imperils Hawkins’ House. Last week I visited by Hawkins House of Burgers in Watts to get an update on their land dispute with Caltrans (and grab one of their fabulous cheeseburgers).?The story starts back in 1939 when James Henry Hawkins moved from Arkansas and used his life savings to buy vacant land at the southwest corner of Slater Street and Imperial Highway, in the Watts section of Los Angeles. The lot had an irregular rectangular shape.?As you can imagine in those days, the surrounding lands were all vacant, so property lines were not clearly defined, nor closely followed.?Hawkins built a two-story house, converting the first floor into a restaurant that became famous as “Hawkins House of Burgers.”?The legend of Hawkins House of Burgers quickly grew and business blossomed.?In 1970, Hawkins granddaughter, Cynthia Hawkins, took over the business after he passed.?Hawkins expanded and build a patio, restroom and an addition to the kitchen.?While most restaurants never survive beyond three years, Hawkins has been serving the community for over 80 years!?In 2016, Hawkins needed additional parking and leased the adjoining land for $300 per month from the owner, the California Department of Transportation (“Caltrans”).?In 2018, Caltrans decided to sell the land and offered it to Hawkins in a “private sale.”?When Hawkins said yes, Caltrans representatives visited Hawkins and surveyed the land.?That’s when everything went sideways.?During the survey, the inspectors discovered that portions of the restaurant were encroaching on the Caltrans’ land. They also discovered that they could not sell the vacant land through a private sale.?The State requires that undeveloped land must be sold through a “public sale“ (i.e. auction with multiple bidders).?At that point, they unilaterally retracted the verbal offer to Hawkins and demanded that she remove the encroaching structures.?But how do you remove the corner of a house??Horrified with the sudden turn of events, Hawkins explains that clearing the area would force her to remove part of the restaurant’s kitchen and bathroom.?Hawkins says the repairs would be extremely costly and, while it would not likely close the restaurant forever, it would force the family-run operation to reconfigure the entire property — a time-consuming process that would shutdown the business for months (or more).?But Caltrans ignored her pleas and sent correspondence demanding that she remove the structures straddling the property line in preparation for a public auction.?Finally, on June 21 of this year, Caltrans’ attorneys served Hawkins with a formal 60-day notice to remove all structures and personal effects that are encroaching the state’s property line.?Fortunately, I am pleased to report that as word?spread this month, social media came to the rescue.?The story was suddenly appearing on local news and raised the ire of local community groups who protested to Caltrans.?Swayed by social media pressure, Caltrans suddenly changed course and agreed to delay the 60-day notice and sale, at least for now.?To be continued…
Cost of Living Posts Biggest Surge Since 2008.?The Consumer Price Index climbed 0.9% last month,?the Bureau of Labor Statistics reports. The cost of used cars accounted for more than one-third of the increase, but prices for food, energy, clothing, plane tickets and hotels also rose sharply.?The last time prices rose that fast was in 2008 (when oil hit a record $150 a barrel). The cost of used vehicles soared a record 10.5% in June following outsized gains of 7.3% in May and 10% in April. These price increases won’t last long, however. Automakers are rushing to produce more new cars and trucks and eventually the market for used vehicles will revert to normal.?The cost of gasoline also rose 2.5% last month and was another big contributor to inflation. As you’ve noticed at the pump, gas prices are up 45% in the past year.?More worrisome was the largest increase in food prices since 2011. Higher food prices suggest some inflation is spreading more broadly through our economy.?Still, much of the increase in consumer prices last month was concentrated in goods and services whose prices fell sharply in the early stages of the coronavirus pandemic last year.?Airfares, hotels and restaurant menus are also increasing.?The rate of inflation in the 12 months ended in June climbed to 5.4% from 5%. But the rapid recovery in our economy has had an unwanted side-affect: higher inflation.?Businesses can’t get enough supplies or labor to keep up with surging sales, forcing them to pay higher prices for almost everything. In turn, they are passing those extra costs onto customers.?The Federal Reserve has repeatedly referred to the sharp increase in prices as “transitory” and predicted inflation would taper off toward its 2% target by next year.?But there’s a risk inflation could stay higher for longer than it expected, according to minutes of the Fed’s most recent strategy session.?So, is the “transitory” debate over? The answer is no, the transitory debate is far from over. In fact, it’s probably gotten hotter.
Producer Price Index Rose 1.0% in June.?In contrast to the CPI, the Producer Price Index (“PPI”) rose 1.0% in June, up 7.3% versus a year ago (highest in over a decade).?As you can see, producer prices continued to surge higher, rising at the second fastest monthly pace in more than a decade.?For years after the financial crisis, the question from economists was whether the Fed could induce 2% inflation, the question has now shifted to if they can keep prices from rising too far and too fast.?Worse, prices are accelerating, up at a 10.6% annualized pace in the past six months.?In terms of the details for June, prices for services led the overall index higher, rising 0.8% (while prices for goods rose a faster 1.2%, services represent more than twice the weighting of goods in the Producer Price Index).?The most notable increase came from final demand trade services, which tracks margins received by wholesalers and retailers.?While prices for producer inputs are rising, they have the pricing power to pass on those costs, and more, to consumers.?This is seen clearly in auto retailing, where a significant supply/demand mismatch paired with consumer cash to spend led margins 10.5% higher in June alone.?Goods prices rose 1.2% in June, marking the fifth monthly rise of 1% or more in just the past six months.?Energy prices jumped 2.1% in June while food prices rose 0.8%.?Strip out these two typically volatile components shows "core" prices rose 1.0% in June and are up 5.6% in the past year.?Bottom Line: extensive "supply-chain" issues continue to be a significant pressure on prices, with no end in sight.?From the shortage in semiconductors that has slowed production of everything from cars and trucks to household appliances, to difficulties finding labor to fill the record number of job openings in the US, supply simply hasn't kept up with demand.?While the Fed has continued the line that this inflation is "transitory," it's getting more difficult to play down these rising prices.?
Landmarked Hollywood Office Complex Will Become Affordable Housing.?Just in time!?A landmark office building in Hollywood is slated to become affordable housing, at a time when the?Los Angeles office market?remains well off pre-pandemic levels while apartment supply remains low.?ABS Properties is converting the upper floors of the Hollywood Western Building into 79 deed-restricted affordable units, according to Urbanize website. The firm will retain only 10,000 square feet of ground-floor retail. The project will begin rehab in the coming weeks.?The Art Deco building sits at 5500-5510 Hollywood Boulevard and is perhaps better known as the “Mayer Building” for one of its developers, Metro Goldwyn Mayer.?The building was designed by architect S. Charles Lee. Los Angeles made it a Historic-Cultural Monument in 1988. It was added to the National Register of Historic Places in 2015, the same year ABS Properties bought it. ABS’ Samir Srivastava said the preservation group, Hollywood Heritage, is involved with the project to help preserve the building’s historic features.?The area east of the 101 freeway has seen a surge in residential development over the last several years.
Poor Neighborhoods Hotter Than Rich Ones in Southern California.?You’re aware of global warming.?But let’s look at warming on a local level.?According to a new UCSD study, urban heat affects low-income communities more than the wealthiest neighborhoods.?Yes, low-income neighborhoods with higher Black, Hispanic and Asian populations experience significantly more urban heat than wealthier and predominantly white neighborhoods in Southern California, according to a UC San Diego School of Global Policy and Strategy study just released.?The researchers, whose findings are published in the journal “Earth’s Future,” analyzed remotely sensed land surface temperature measurements of 1,056 U.S. counties which have 10 or more census districts. The analysis revealed that for 71% of those counties, land surface temperatures in communities with higher rates of poverty are up to 7 degrees Fahrenheit warmer, compared to the richest neighborhoods during the summer months. But how is that possible??Systematically, the disproportionate heat surface exposures faced by low-income communities with larger minority populations are due to: (1) more built-up neighborhoods, (2) less vegetation, and — to a lesser extent — (3) higher population density, according to the report.?Excessive heat has been linked to a range of consequences for humans, from premature births, to lower test scores, decreases in productivity and increased risk of heat stroke among children and the elderly, the researchers said.?Nearly all of Los Angeles County south of the San Gabriel Mountains, with the exceptions of affluent enclaves Malibu, Rancho Palos Verdes and Beverly Hills, show up bright red on the study’s heat map (see map below), a sign of five degrees Celsius warmer than the average temperature on a summer day.?More trees and other greenery, along with building materials in pale colors can lower urban temperatures, according to the study.?They found vegetation and the number of built-up areas to be the two biggest drivers that create or offset heat within urban areas. Examples include desert cities like Palm Springs, which experience urban cooling due to more vegetation and light-colored street surfaces, roofs and other building materials.?The research team found that more vegetation planted could reduce summer temperatures on average by 1 degree Fahrenheit for 59% of the urban population.
Thousands Have Been Evicted Despite State Protections.?Though California renters are supposedly protected?from coronavirus-related evictions, thousands of evictions have been carried out statewide since last summer.?Sheriff’s departments in 56 of the state’s 58 counties enforced at least 7,677 lockouts from July 2020 to March 2021, according to the Los Angeles Daily News. In fact, our own L.A. County accounted for more than a third of that total.?The pace of evictions picked up at the start of this year. There were 4,002 evictions in the second half of 2020 and 3,675 in the first quarter of 2021 alone, according to the report.?The state, along with the city of L.A., L.A. County and several jurisdictions implemented eviction moratoriums at the beginning of the pandemic. The state again extended its moratorium?through the end of September.?Most moratoriums were designed to prevent evictions for non-payment of rent as a direct result of the pandemic, but they still allow certain types of evictions. For example, tenants can be evicted if they commit a crime on the property or are deemed a nuisance, along with other reasons.?Evictions ordered before the moratorium took effect can also be enforced. Orange County, for example,?resumed pre-pandemic evictions?in May 2020. Lorraine Lopez, senior attorney at the Western Center of Law and Poverty, said that landlords?were “looking for other reasons to evict folks.”?She said her group saw more nuisance evictions for reasons that before the pandemic were rarely used to move people out of a unit, such as storing things illegally in a parking spot.
Wildfires are Burning Hotter, Faster, and With More Intensity.?Many of 2021’s biggest blazes have one thing in common: They are burning faster and hotter than firefighters have ever seen this early in the year.?Why??Because a winter and spring of?little rain?and minimal snow runoff (followed by months of unusually warm conditions and several?summer heat waves) left the vegetation primed to burn fast, giving crews little time to get a handle on the flames before they explode.?Vegetation is at record-dry levels for this time of the year, and it is at least six weeks ahead of where it should be, according to UCLA climate scientist Daniel Swain. It is most anomalously dry in Northern California, where most of the recent fires have ignited.?Variables such as wind and terrain can affect the speed of a fire, but fire officials said extreme dryness is one of the driving forces behind the rapid growth of the blazes.?The dryness of the vegetation, primed by both long-term drought and shorter-term heat waves?is turning terrain into kindling, making it easy for fires to ignite and even easier for them to spread.?For example, from July 2020 to June of this year, the city of Los Angeles received only 41%?of its typical rainfall, while the Northern Sierra region recorded its third driest year on record. The statewide snowpack was?well below?where it should have been in April, when it is typically the deepest.?And while much of the state’s extreme fire behavior can be attributed to the drought, rising global temperatures characterized by more frequent extreme heat waves are also a significant factor, experts said.?Adding to fire experts’ concerns is the fact that much of the dry vegetation this year hasn’t yet encountered severe winds, which tend to arrive in the form of “Santa Anas” and “sundowners” later in the year.?But when the extreme dryness does meet those strong winds, it can quickly spell disaster.?So get ready…
Rihanna Asking $80K a Month for Her Beverly Hills Mansion.?She has nine Grammys, a luxury fashion brand, cosmetics company and various humanitarian ventures, but Rihanna may also soon become a landlord. She recently listed her five-bedroom, seven-bathroom Beverly Hills mansion for rent at $80,000 per month, according to Dirt Magazine.?Rihanna bought the 7,600-square-foot estate, located near Coldwater Canyon in Beverly Hills Post Office, for?$13.8 million?earlier this year. The seller was tech entrepreneur Daniel Starr, who had demolished and rebuilt most of the original 1930s structure. The home features mountain views, along with a central courtyard, pool and spa, fire pit lounge and private gym. The interior is open floor plan, with white walls, parquet hardwood floors and extensive marble.?Rihanna — ranked by Forbes?as the world’s wealthiest female musician with a $600 million fortune as of 2019 — won’t miss the living space. She also owns a condo along L.A.’s Wilshire Corridor, a Century City penthouse, a mansion in Hollywood Hills and a vacation home in Barbados.?This spring, just weeks after buying the Coldwater Canyon mansion, she also bought the house directly next door, paying $10 million?for a 3,500-square-foot Tudor-style property with a massive pool. The rental listing comes as average rent prices in Los Angeles have actually been falling.?A recent USC report found that the pandemic-inspired “large scale move?away from central cities to suburbs” had led to a rise in vacancy in much of central L.A. The report projected that trend, and its associated dip in?rent prices, could continue, while rent prices in the suburbs might keep climbing. If you know someone looking for an $80,000 rental in Beverly Hills, have them contact Rihanna.
Elon Musk Is Living in a Tiny Prefab House in Texas. Remember when Elon Muskleft California in a huff, selling off all of his mansions and swearing he would live property free? Well, it’s been six months and, it seems he might have followed through with this particular pledge. Yes, Musk is now living in a 375-square-foot prefab tiny house in Boca Chica, Texas.?The Real Deal?reports?that since Musk made the move to Boca Chica (the Gulf Coast town where Space X has been gobbling up property),?he has ensconced himself in a 20-foot-by-20-foot accessory dwelling unit (“ADU”) made by the Las Vegas-based startup?Boxabl. ?Musk?tweeted last month that he was living in “literally a ~$50k house” on a property rented by Space X. ?Boxabl co-founder Galiano Tiramani, calls the company’s ADUs “casitas,” the preferred name by some in the industry.?While there are certainly a lot of unanswered questions about Musk’s specific living situation — where does Grimes sleep? Is the baby there? — it’s not hard to envision a Space X brand partnership with Boxabl, seeing as there’s so much overlap here with Musk’s own endeavors. Boxabl’s casitas arrive, expectedly, in a box, one that can be towed to the site, perhaps by a large electric truck, and assembled in one hour, its innards unfolding with Transformers-like precision to reveal finished walls, countertops, and even appliances. It’s ideal for temporary housing on a site like SpaceX’s “Starbase.” ?It’s slightly less useful in a dense city where land is at a premium. The company says the units can be stacked, but images show them only two stories high. Boxabl also claims to be “the only building system compatible with automobile-style factory mass production,” which could make for clean integration with Musk’s manufacturing hubs (some of which are also located in Nevada). And if social media is any measure, Boxabl’s fans are every bit as fanatic and evangelistic as Tesla’s, prognosticating that this home-in-a-box will signify the complete “disruption” of the construction industry.?Sound familiar?
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.?You can RSVP at www.LAREIC.com, to receive your Zoom Meeting ID and passcode.
Vendors Expo Returns!?Our super-duper, world-famous "Real Estate Vendors Expo"?returns on Thursday night,?September 9, 2021 (6:30 pm to 8:00 pm. 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.
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 .??
LAREIC University.?For our Summer Semester, we have assembled an incredible schedule of real estate classes and workshops that are available for you virtually.?If you’re serious about furthering your investing education, you need to register for these classes.?You can register at LAREIC.com/LAREICUniversity .?Upcoming classes for July include:
July 20:??“Impact of Mindset”
领英推荐
July 21:??“Building ADUs”
July 22:??“How to find and buy Probates”
July 24:??“Trading in Discounted Notes”
July 27:??“The Power of Incorporation”
July 31:??“Fix and Flip Houses”?
?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, it will be an important week focused on our favorite topic, the housing market. ?On Monday (7/19), the National Association of Home Builders releases its NAHB/Wells Fargo “Housing Market Index” for July.?The Census Bureau’s new residential construction data (i.e. “Housing Starts”) will be released on Tuesday (7/20).?On Thursday (7/22), the National Association of Realtors reports “Existing Home Sales.”?Jobless Claims will also be released on Thursday (7/22).
?Weekly Changes:
10-year Treasuries: Fell?002 bps
Dow Jones Avg.:?????Fell?100 points
NASDAQ:?????????????????Fell?200 points
Calendar:?????
Tuesday, 7/20:?????????Housing Starts
Thursday, 7/22:???????Existing Home Sales
Thursday, 7/22:???????Jobless Claims
?For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club
310-409-8310
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