Economic Update (Monday Oct 19, 2020)
Economic Update
(Monday, October 19, 2020)
At its core, real estate is a people business, and being kind to people is a business approach that never goes wrong. Being kind builds a positive image. It earns trust. It garners respect. It creates huge opportunities for referrals, personal recommendations, and growth. Throughout this Pandemic, kindness has won the day over and over again. Kindness shines through even in the darkest moments. It gives us hope that better days are ahead. But like many positive traits, kindness must be consistent in order to be authentic. You can’t be compassionate and caring every other day. It’s an all-in, all-the-time proposition. So be kind. Be fair. Honest. Ethical. And do it consistently, so it becomes a habit and part of who you are. Kindness also sows optimism, and optimism is exactly what we need right now. Because if we give in to the gloom and allow fear to drive our behavior, each day will move us another step further away from where we need to be. No one knows what the next chapter in the story of COVID-19 will be. What we do know is that investors continue to buy and sell properties, and you need to stay involved. With a sense of empathy and the resolve to be kind, let’s wash our hands, put on our face masks (yes, you!), social distance, and dig deep into this week’s economic news…
Consumer Price Index. The Consumer Price Index (“CPI”) rose 0.2% in September and up 1.4% from a year ago. Energy prices rose 0.8% in September, while food prices were unchanged. The "core" CPI (which excludes food and energy) rose 0.2% in September, and up 1.7% from a year ago. Inflation was on the rise in the third quarter, as the CPI rose at one of the fastest 3-month paces since before the last recession. Over the past three months, consumer prices are up at a 4.7% annualized rate (well above the Federal Reserve's inflation target of around 2%). However, don't expect this to change the Fed's plan to keep short-term rates near zero for the foreseeable future. The typically volatile energy category rose 0.8% in September, led higher by a 4.2% increase in natural gas prices, while food prices were unchanged. Coming off historically large increases in July and August, "core" inflation has been rising at the fastest pace since the early 1990s, although this follows declines in March through May. One of the biggest drivers of "core" prices in September was used cars and trucks, where prices rose 6.7%, as dealers had lower inventory levels (due to fewer trade-ins during the pandemic) while they also experienced a surge in buyer demand. Some other contributors in July were hospital services (0.6%), new vehicles (0.3%), and housing (0.2%). You can anticipate inflation continuing to rise in the months ahead toward the 2% - 3% annual pace of inflation that was in effect before the Coronavirus wreaked havoc on our economy.
Retail Sales. The U.S. Census Bureau reports that retail sales surged in September, growing 1.9%. The increase in sales in September was led by autos, clothing & accessory stores, restaurants & bars, and general merchandise stores. The only decline was for furniture, electronics & appliance stores. But its important to keep in mind how much progress has been made. Back in April, retail sales were down 19.9% from a year ago. Now, in September, retail sales are up 5.4% from September 2019. For more perspective: from February (before the COVID shutdowns started) to the bottom in April, retail sales fell 21.7%. Now, with the increase in September, we are 4.2% higher than the February mark, meaning retail sales have had a full V-shaped recovery and are now starting to look more like a checkmark. Auto sales, which fell 34.9% from February to April, led the way higher in September, up 3.6%, and have now recovered more than 100% of what was lost during the downswing. So, a big shout out to those of you that purchased cars in September! Other categories that were large contributors were sales at clothing and accessory stores, up 11.0% in September, and sales at restaurants & bars which rose 2.1%. Although retail sales have snapped back quickly to pre-crisis levels and far faster than expected, many economists still worry a letdown is coming. People are returning to work at a slower pace, the coronavirus is spreading rapidly again, and Washington has failed to pass a second coronavirus-relief bill, triggering fresh worries about the health of our economy. In fact, many economists have openly urged the federal government to pass another major financial relief bill to prevent the recent economic progress from stalling. But as you know, Democrats and Republicans have been deadlocked for months.
Weekly Housing Trends. The National Association of Realtors (“NAR”) issued its latest weekly housing trends, which is always closely watched by investors as a barometer on the retail residential market. According to the NAR, the median listing price grew at 12.9 percent over last year, marking the 21st week of accelerating prices and a new high-mark for price growth in NAR’s weekly data (which goes back to 2017). During a normal year, asking prices begin to dip going into the fall buyers disappear and sellers have to do more to attract a buyer from a smaller pool of shoppers. But 2020 is NOT a normal year and is not following this usual seasonal trend. The typical September asking price remains at $350,000 nationally, on par with peak summer home prices. In contrast, new listings are down 7 percent. This is because the number of sellers deciding to put their home on the market remains limited, but the drop in new sellers is not as large as the overall decline in inventory. This means new listings are a growing share of total listings–providing some small relief for option-starved buyers. Total inventory is down 38 percent! But with high interest from buyers and limited new listings, the total number of homes available for sale continues to shrink. For the third week in a row the pace of decline was improving. We’re a long way from a buyer’s market, but this is a buyer-friendly shift. As a result, time on market is now 13 days faster than last year as houses fly off the shelf. With low inventory, low mortgage rates, and a large pool of buyers, homes sell much faster than a year ago. The rapid turnover reflects the unseasonable excess of buyers in the housing market this fall, and will likely persist until sellers come back in a bigger way.
John Lautner’s Hollywood Hills House. If you’re a real estate investor and appreciate architecture, you probably admire the legendary architect John Lautner (1911-1994). A disciple of Frank Lloyd Wright, Lautner designed over 400 residential and commercial buildings, many in Los Angeles County. In 1952, Harry Williams, a life-long Beachwood Canyon resident, commissioned Lautner (whom he’d met at their family market), to design a contemporary house on a piece of land just below the Hollywood sign. (Beachwood Canyon is a bucolic community in the Hollywood Hills, a bastion of 1920s revival architecture). In March of this year, Williams passed away and his “beloved” home is now on the market for the very first time, at $1,895,000. Though close to 70 years old, the post-and-beam home at 3329 Ledgewood Drive looks practically brand new, not only because of its forward-thinking design, but also thanks to a respectful 2018 restoration overseen by Helena Arahuete (Lautner’s longtime associate who took over the firm after his death). The two-story residence is topped by a wood and glass pavilion; the upper level contains the living and dining areas, galley kitchen, two bedrooms, and one bath, while the master bedroom, a second bathroom, and a sizable workshop/art studio are on the lower level. Notable architectural features include dramatically angled Douglas fir beam ceilings, custom built-in furniture, polished concrete floors with radiant heat, and a fireplace constructed out of interlocking concrete blocks (the only one like it that the architect ever made). Exterior spaces include a large upper level patio deck, a rambling garden, an open-air greenhouse filled with an extensive collection of staghorn ferns, and a two-car carport. Architectural purists will be relieved to hear that the home has seen barely any structural alteration, apart from the removal of a closet that was originally near the front door. Updates include an energy-efficient composition shingle roof, a mini split air-conditioning system, new kitchen countertops and appliances.
Forbearance. If you’re having difficulty making your mortgage payments during this pandemic, you need to know there are two protection plans that are in place to help. First, there is a moratorium placed on initiating foreclosures for all government-backed loans (i.e. Fannie Mae and Freddie Mac). This plan started on March 18, 2020, and it extends at least through December 31, 2020. Second, property owners are able to obtain forbearance directly from their lenders for up to 180 days, followed by a potential extension for another 180 days. The challenge is a lot of homeowners aren’t aware of these options. In a recent survey by the National Housing Resource Center, housing counselors from across the country noted that many homeowners really don’t know that there is help available. True, over 4 million property owners obtained forbearance agreements with their lenders during the pandemic. But that means 530,000 homeowners who became delinquent after the pandemic began did NOT take advantage of forbearance, despite being eligible for the plan. Additionally, 205,000 homeowners who were in forbearance programs but did not extend their forbearance after the initial 180-day term ended, became delinquent on their loans again. Worse, nearly 21 percent of both Black and Hispanic homeowners missed the previous month’s mortgage payment, compared with only 10 percent of white homeowners and about 13 percent of all homeowners with payments due. Clearly, a more focused effort on education about forbearance and relief programs may make a big difference for many people. The Urban Institute indicates it’s important to note that borrowers experiencing financial hardship have the right to request forbearance. If you’re unfamiliar with the plans available, contact your mortgage provider (the company you send your mortgage payment to each month) to discuss your options. It is a necessary first step, as you may qualify for mortgage relief options or forbearance. If you need additional information on your options, you can review the “Homeowner’s Guide to Success” from the Consumer Financial Protection Bureau and “Protect Your Investment Guide” from the National Association of Realtors.
Ellen’s Montecito Estate. Our favorite fix and flip investors, Ellen DeGeneres and wife Portia DeRossi are looking to flip a nine-acre Montecito compound for a "nice" $39.9 million (just a year after buying the seaside spread for $27 million). DeGeneres and DeRossi have a rich history of flipping lavish properties. DeGeneres says she’d lost track of how many homes she’d purchased, but Vogue‘s tally had her at 15 homes in 25 years as of 2018. Some of the couple’s recent transactions include Brad Pitt and Angelina Jolie’s former Malibu beach home, which they bought in 2011 for $12 million and sold in 2012 for $13 million; a horse ranch in Thousand Oaks they bought in 2008 for $8.5 million and sold in 2013 for $10.85 million; a Hal Levitt-designed Beverly Hills home they bought in 2012 for $17.4 million and sold in 2013 for $20 million; and, just a few years ago, another Montecito home they bought in 2017 for $7.2 million and sold just a year later for $11 million. The Montecito estate currently listed boasts scenic grounds and gardens spread across three parcels with trees, fountains, a pond, pickle ball court, and an infinity pool overlooking the Pacific. During their year at the ultra-luxury manor, DeGeneres and DeRossi had much of the living space refurbished, including the four-bed, 10-bath, 10,700 square-foot main house—where warm woods adorn the ceilings of the ocean view great room, the floors of the remodeled chef’s kitchen, and the walls of the library. The secluded expanse also features a guest house, cabana, and covered lounges. Other than her real estate flipping activities, it has been a difficult summer for DeGeneres in the wake of a scandal that tarnished her rep as the “nicest” host on daytime and sent her ratings spiraling.
New York Real Estate. In comparison to Los Angeles, the median price in Manhattan fell 4.2% year-over-year, according to StreetEasy, the city’s main listing site. Manhattan sellers added more than 2,700 homes to the market, a record number of new listings and a potential sign of life in a market battered by a lengthy pandemic lockdown in the spring. The number of new listings in the pricey New York City borough was 86% higher than last year and reflects a level of seller enthusiasm usually seen at the peak of the spring buying season in April. The flurry of new listings, however, comes as many affluent New Yorkers are flocking to suburban and coastal areas outside of the five boroughs. Economists and industry experts view a jump in listings as a leading indicator of future sales, as inventory—which plummeted during the peak of the pandemic—must recover first before home tours, offers and contracts can follow. Brooklyn also logged a record jump in new listings last month. Sellers there put 1,724 homes on the market, 50% more than a year ago. Citywide, total inventory has just about rebounded to pre-pandemic levels, and 6% lower than a year ago. There’s also evidence that sellers may need to adjust their price expectations in order to find a buyer, given the prevailing climate of uncertainty in the city, which is facing one of the worst economic outlooks since the Great Depression, Mayor Bill de Blasio has said. In Manhattan, the median price is $1.45 million, with the biggest decline occurring in the borough’s Upper West Side. Brooklyn’s median price fell a more modest 2.1% compared to a year ago, to $969,000. In comparison, the median price in Los Angeles County is approximately $678,000. Despite the surge in listings, the future of New York City’s real estate market remains in flux as many white-collar workers and affluent residents have been fleeing to the suburbs and x-burbs since the spring, when New York was the epicenter of the pandemic. Bedroom communities in Westchester County, New York, and across southern Connecticut have reported a surge in activity as a result.
See’s Candy Goes Sweet. Angelenos have focused on many concerns since Covid-19 shutdowns swept through our local businesses in mid-March. Still, a sweet sorrow overtook the city’s chocolate lovers when news broke in March that See’s Candy Shops was suspending operations for only the second time in a century. (The first was a brief shutdown during World War II when butter, sugar and cream were rationed and in short supply.) Although See’s candy is owned by Warren Buffett, many locals continue to claim ownership of See’s as an L.A. brand. After all, the company was founded in Los Angeles in 1921 by Charles See, who opened his first shop in what is now Koreatown. A See’s factory has a prominent place on La Cienega Boulevard. That facility served as the training ground for TV stars Lucille Ball and Vivian Vance to learn about dipping and packing chocolates for that infamous 1952 “I Love Lucy” episode in which the pair cause chocolate chaos trying to keep up with the conveyor belt. And See’s largest packing and shipping facility is in Carson, further solidifying the local connection. Ironically, the company’s shutdown hit at the very same time as a Covid-induced spike in candy consumption nationwide. The National Confectioner’s Association, based in Washington, D.C., released a very sweet report saying overall sales of chocolate and candy increased 3.8% from March to September, with chocolate (up 5%) and premium chocolate (up 12.5%), dominating other candies. And most of that consumption was probably mine! Now I am delighted to report that the company has begun re-opening shops for in-store business, beginning with stores with street access. There is one big difference in the current in-shop experience, however. Due to Covid-19 safety protocols, customers no longer are handed See’s signature free sample chocolate in a paper wrapper at the candy counter. But don’t worry about missing out on FREE sugar. See’s shops now put an individually wrapped candy or lollipop in each customer’s bag on the way out. BTW, what is See’s most popular individual chocolates during a pandemic? The Scotchmallow and the Bordeaux (which features a brown sugar center enrobed in dark chocolate).
LAREIC’s November Virtual Meeting. We are very proud to announce our November general membership meeting will take place on Thursday night, November 12, 2020, 7:30 to 9:00 pm! Our special guest speaker will be Jimmy Reed visiting us virtually from Fort Worth, Texas. Jimmy is an expert on marketing for distressed properties and structuring wholesale deals. So if you’re interested in wholesaling, don’t miss Jimmy’s presentation. The title of Jimmy’s presentation is “How to Find Wholesale Deals Others Don’t See.” RSVP at: https://www.accelevents.com/e/NovemberMeeting. But hurry because we only have limited capacity on the Zoom broadcast. (As you know, we were sold out the last two months and had over 100 people on our waiting list.)
Annual Los Angeles Real Estate Grand Expo. Our annual Grand Expo is always the largest and most exciting real estate event in Southern California. Last year we had 14 national expert speakers, 64 vendors, and over 800 investors and real estate professionals attending! And this year will be even bigger! Our Grand Expo is scheduled for Saturday, January 30, 2021 (9:00 am to 6:00 pm), at UCLA’s beautiful Carnesale Commons. To receive the latest updates, please register at www.LAGrandExpo.com. (The Grand Expo is a joint production of the Los Angeles Real Estate Investors Club, Realty 411, Sam’s Real Estate Club, and the Ventura County Real Estate Investors Association).
This week. Looking ahead, investors will remain focused on medical advances to fight the coronavirus and negotiations for additional government fiscal stimulus measures. Beyond that, it will be a good week for economic data on our real estate market, with the spotlight on the housing sector. Today (10/19), the National Association of Home Builders releases the NAHB/Wells Fargo housing index for October. Existing Home Sales will be released on Thursday (10/22) by the NAR. The Conference Board will also release its Leading Economic Index on Thursday (10/22).
Calendar
Monday, 10/19: Housing Index
Thursday, 10/22: Existing Home Sales
Thursday, 10/22: Jobless Claims
Weekly Change:
10-year Treasury: Fell 0.02 points
Dow: Rose 300 points
NASDAQ: Rose 200 points
For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club, LLC
310-409-8310
