Economic Update (Monday, October 11, 2021)
Economic Update
(Monday, October 11, 2021)
An Investor Sentiment Survey released last week by RealtyTrac found 48% of investors surveyed believe the investment market is worse than it?was a year ago. Almost 63% said the rising cost of houses is a major challenge?for real estate investing.?(RealtyTrac limited their survey to investors that purchase between one to 10?properties a year.)?Investors (whether so-called mom-and-pop landlords, iBuyers or Wall Street-backed firms), have been one of the forces shaping the wild for-sale housing market, as they compete for homes alongside millennials looking to buy their first home, among other groups.?The headache facing investors and traditional homebuyers alike? ?“Simply not enough supply,” says?Rick Sharga, executive vice president at RealtyTrac.?"There’s just nothing to buy."?Whatever inventory does exist today tends to be expensive, also contributing to investors' pessimism.?However, there are signs the market is starting to level off?after month-over-month record breakers seen earlier this year. Last year's fall and winter months were unusually busy because of the pandemic. But Sharga insists a return to a more cyclical housing market is likely to take place this fall and winter.?"As we start to see more inventory in play and demand weaken, as it does seasonally, we probably will see investors re-enter in a more active way in their local markets," Sharga says.?Sharga also suggests it wouldn't surprise him if more real estate investors invested further afield, looking for houses in secondary or tertiary markets (rather than major markets like L.A.).?"Capital doesn’t seem to be the issue right now; it’s finding something to buy and put back on the market," he says.?For more of Sharga’s observations, don’t miss his presentation to the Los Angeles Real Estate Investors Club on October 14th.
Disappointing Employment Numbers.?The U.S. economy added a meager 194,000 jobs in September, as a critical shortage of workers hampers our nation's economic growth.?Fortunately, the unemployment rate fell to 4.8 percent from 5.2 percent, the Bureau of Labor Statistics said Friday. ?One optimistic interpretation is that Covid-19 case counts are receding, so future months should be stronger. But the reality is that we are still in a pandemic. One positive in the report is the upward tick in hourly wages, which rose by 0.6 percent. Wage growth is a metric on which the market is keeping a sharp eye as it struggles to interpret the noise around skyrocketing prices, supply chain bottlenecks and what, exactly, the Fed means when they say inflation is “transitory.”?For most of the pandemic-recession recovery, metrics around earnings and wage growth have been volatile. In particular, the dramatic collapse of the leisure and hospitality sector skewed earnings data as millions of low-wage, service-sector workers lost their jobs due to Covid-triggered shutdowns. ?Some economists argue that the big miss in August could have been a function of flat leisure and hospitality jobs, which until that point had contributed an average of 350,000 new jobs per month over the past six months.
Mortgage Rates Jump Above 3%.?As expected, mortgage rates have risen after the Federal Reserve signaled that it plans to begin reducing the support it’s been providing to the U.S. economy.?Accordingly, you could be caught flat-footed if you don't begin to factor rising interest rates into your budget. At today’s rate, the monthly mortgage payment on a median-priced home for-sale is roughly $150 higher than it was a year ago, with $25 of the increase owed to higher rates and $125 owed to higher home prices.?Mortgage rates rose above 3% for the first time since the beginning of July — and you could feel the crunch.?The 30-year fixed-rate mortgage averaged 3.01% for the week, up 23 basis points from the previous week, Freddie Mac reports. (A year ago, the 30-year fixed-rate mortgage was averaging 2.88%.)?The 15-year fixed-rate mortgage, meanwhile, rose 13 basis points to an average of 2.28%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.48%, up five basis points from the previous week.?The rise in mortgage rates follows the upward climb of the 10-year U.S. Treasury yield?over the past week, as the long-term bond rose to the highest level since June. In both cases, the surge in interest rates came as a reaction to last week’s statement from the Federal Reserve. The central bank signaled it would begin tapering the asset-buying activities that it began last year in an effort to stimulate our economy. The central bankers also indicate that an interest-rate hike could come in 2022.?Among the assets that the Fed has been buying on a monthly basis are mortgage-backed securities. Those purchases by the central bank helped to pump a ton of liquidity into the mortgage market, which allowed lenders to cut interest rates. But with the size of the Fed’s purchases likely to decrease later this fall (i.e. “tapering”), lenders will be forced to increase rates. That could have ripple effects into the broader housing market. Meanwhile, mortgage rates remain low and are supporting demand.?However, the incentive to buyers will diminish if rates rise once the Fed starts tapering.
?
FEMA Won't Rebuild Your House(s) After a Disaster.?Remember, you heard it here first. ?When fire tears through a community and the President declares a major disaster, that opens the way for the Federal Emergency Management Agency to roll in to help. But that help, by design of Congress, is more limited than you would think.?For example, survivors of disasters like wildfires who qualify for FEMA aid can typically expect only a few thousand dollars for home repairs or other needs while they work to rebuild their lives. But even those people who make it through the confusing application process have to show they had little in the way of insurance, income or borrowing ability to receive the aid.?Only half of all applicants are approved, according to the Government Accountability Office (“GAO”).?A GAO audit last year?found that most of those who applied had too much income or insurance to qualify.?Between 2016 and 2018, survivors of wildfires received about $6 billion in FEMA assistance payments and were placed in 12,805 temporary housing units. Most of the applicants were uninsured and most had incomes under $50,000, a Feb. 2021 GAO Report said. More than half of the 4.4 million people who applied to FEMA’s Individuals and Households Program?for cash assistance were denied, according to the GAO Report.?Some 2.4 million applicants were turned away because their property did not sustain enough damage to meet the program requirements, or they couldn't provide enough evidence of their losses.?But worse, of the nearly 2 million people who were approved for the Individuals and Households Program between 2016 and 2018, the payouts were fairly small. On average a homeowner received only about $4,200 and a renter $1,700 in assistance.?The GAO audit makes another point about the obstacles people encounter pursuing federal assistance. It said that too many applicants for FEMA aid drop out during the process because FEMA’s messaging is confusing.?The biggest source of confusion is the mandate that applicants for FEMA aid must first apply for Small Business Administration Loans — and be fully or partially denied a loan — in order to qualify for FEMA’s assistance.?FEMA’s rules, which are set by Congress under the Stafford Act, bar FEMA from duplicating the resources a disaster survivor has in the way of income, insurance or loans. Hence the direction to first seek a loan from the SBA (which has the internal machinery to issue loans and manage repayments).?Only after a formal rejection by the SBA can a property owner apply to FEMA.?Then, once a person is deemed to be sufficiently without income or insurance to qualify for FEMA assistance, that aid is still quite limited.?The aid is limited to being spent on making your home safely habitable and both the need and expenses have to be documented. And not every house would get the same amount of repairs.?The payments max out at $36,000. And that’s hardly enough to replace a burned home in Southern California. And keep in mind, while the property owner is going through this gauntlet, they are already in shock losing most, if not all, of their worldly possession and home.
The Water Situation Is Bad and Getting Worse. Despite Governor Gavin Newsom kicking off the summer by begging Californians to use 15 per cent less water?(thanks to a drought state of emergency), water officials announced last week that statewide use was reduced by a meager 1.8 percent, and warned that our seemingly unquenchable thirst may have dire consequences in the not-at-all-distant future.?As CalMatters reports, the Department of Water Resources alerted water suppliers south of the Sacramento–San Joaquin River Delta, that their allotments (already cut to 5% this year) might be slashed to zero next year. The Department further warned that this “liquid austerity” could extend to settlement contractors, users whose claims to state water predates the current system of aqueducts, reservoirs, and canals.?“The challenge is, there is no water. We’re planning for the worst, but we are hoping for something better.”?The Department reports.?“And the state’s here to make sure that if we need to go mandatory, that’s where we’re going.”?SoCal made a sad showing, with areas including Los Angeles, Orange, San Diego, and Ventura counties saving just 0.1 percent this summer compared to summer 2020. In fact, roughly 40 percent of water suppliers in the area actually used more water!?Some of the worst water-suckers were El Segundo, up 31 percent since last year; the Mission Viejo-Laguna Niguel area, which guzzled 15 percent more; while the cities of Downey and Poway and the Casitas district in Ventura were all up 14 percent. The Los Angeles Department of Water and Power and the city of San Diego, meanwhile, used about 1 percent more than in 2020.
The Granny Flat Built for Climate Change.?Granny flats (aka “ADU”) don’t have to look ugly.?Some are downright “eco-chic.”?Take, for example, sustainable builder Steve Pallrand, founder and principal designer of the L.A. firm Carbon Shack Design.?A dilapidated barn’s redwood siding Pallrand found was the impetus for what came next: an 888-square-foot zero energy?ADU.?In a world that is slowly coming to grips with climate change, Pallrand’s eco-friendly approach to construction appealed to the homeowners, a television writer and a musician, who wanted a sustainable and modern addition where they could accommodate friends and family, and their aging parents in particular.?They also wanted a home that would complement their Highland Park neighborhood, which is one of the oldest communities in Los Angeles and home to some of Southern California’s most classic architectural styles, such as?Craftsman, Queen Anne Victorian, Mission, and Tudor Revival.?But Pallrand didn’t stop there. ?Old roof sheeting was reused as flooring. Board-and-batten barn siding was used to make the cabinets and millwork. The concrete slab was broken up and used as pathways, and when the city forced them to remove a cedar tree for fire access, they used it to create live edge countertops and furnishings in the kitchen.?While the city has loosened the reins for those wanting to build additional dwellings on their property and has implemented a simplified program known as?the “ADU Standard Plan Program,” Pallrand takes it a step further by showing that ADUs can also add value and beauty while consuming less energy.?Inside, exposed timber, beams and colorful Revival tile (from Mission Tile West) in the kitchen and bathroom continue the Craftsman theme while high-performance thermal sliding door panels at the southwest corner of the unit connect the addition to the backyard and pool — a classic Modernist move.?Beefed-up insulation and dual-pane windows, framed with reclaimed lumber from other salvaged jobs, reduce noise and energy usage. And clerestory windows flood the interiors with daylight and expand the views out while maintaining privacy.?As Los Angeles grows denser and?California records its hottest summer on record,?the Highland Park ADU stands as an example of what’s possible: new housing in an increasingly crowded city that is energy efficient.?
Bruce’s Beach Can Return to Descendants of Black Family.?In a history-making move celebrated by reparations advocates and social justice leaders across California, Governor Newsom has finally authorized the return of property known as “Bruce’s Beach”?to the descendants of a Black couple that had been run out of Manhattan Beach almost a century ago.?Senate Bill 796, signed into law last Thursday by Newsom before an excited crowd that had gathered on the property, confirms that the city’s taking of this shorefront land (on which the Bruces ran a thriving resort for Black beachgoers) was racially motivated and done under false and unlawful pretenses.?The bill passed unanimously this month in the state Legislature and includes an urgency clause that allows Los Angeles County, which currently owns the property, to immediately begin the process of transferring the land.?The story of Bruce’s Beach?attracted increasing national attention this year — and?stirred quite a bit of controversy?in the very white city of Manhattan Beach. (Black residents to this day make up less than 1% of the population.) In 1912, Willa Bruce purchased for $1,225 the first of two lots along the Strand between 26th and 27th streets. While her husband, Charles, worked as a dining-car chef on the train running between Salt Lake City and L.A., Willa ran a popular lodge, cafe and dance hall — providing Black families a way to enjoy a weekend on the coast.?Many referred to this area as “Bruce’s Beach.” ?A few more Black families, drawn to this new community, bought and built their own cottages next door.?But the Bruces and their guests faced years of threats and harassment from white neighbors. The Ku Klux Klan purportedly set fire to a mattress under the main deck and torched a Black-owned home nearby.?When racism failed to drive the Bruce’s Beach community out of town, city officials in 1924 condemned the neighborhood and seized more than two dozen properties through eminent domain. The reason, they said, was an urgent need for a public park.?But for decades, the properties sat empty. The Bruces’ two oceanfront parcels were transferred to the state in 1948, then to the county in 1995. City officials eventually turned them into a pretty park overlooking the sea.?Worse, what Manhattan Beach did almost century ago torn the Bruce family apart. ?Charles and Willa ended up as chefs serving other business owners for the remainder of their lives. ?But the Bruce family is heartened by the new movement of people calling for justice.
Winchester Mystery House.?In homage to Halloween and haunted houses, I would like to highlight the scariest house in America, the “Winchester House.”?If you’ve rehabbed a house, you’ll know exactly what I mean.?According to legend, the rambling?Victorian mansion?that sits on a busy street in San Jose, California, is haunted by the ghosts of everyone ever killed by a Winchester rifle. That’s undoubtedly a lot of ghosts!?In order to appease them, the house’s owner, Sarah Winchester (the heir to the Winchester rifle fortune and the founder’s widow), added room after room to the house to provide more space for the dead.?As she slowly lost her mind, Winchester compulsively constructed more and more rooms without ever tearing down existing rooms first (fearing the dead would get angry).?But Winchester didn’t simply add rooms, she created an endless labyrinth filled with halls that lead nowhere, cut-off staircases, sloping floors, and a rabbit warren of chambers.?According to property records, the house has “10,000 windows, 2,000 doors, 47 fireplaces, 40 staircases, nine kitchens, and 13 bathrooms.” (I guess ghosts need to go to the bathroom too.)?Since Winchester died in 1922, the home has hosted tours for those willing to walk among the Winchester ghosts.?However, tours of the house are now temporary suspended, but not due to the pandemic. Rather because the house is just so damn scary!?But guests can still walk the grounds, if you dare.
Vendors Expo Returns!?Our world-famous super-duper "Real Estate Vendors Expo"?returns after 19 months on Thursday night,?October 14, 2021. The Vendor Expo will be open from 6:30 to 7:30 pm (before the beginning of our general meeting), and 9:30 to 10:30 pm (after our general meeting). 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) at the Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission.?Please RSVP at www.LAREIC.com .
October General Meeting.?Our first “live in-person” meeting in 19 months will be held on Thursday night, October 14, 2021 (6:30 to 9:30 pm).?And we have a very special guest to celebrate.?There aren’t many celebrities in the real estate world, but there is one very special individual who stands out.?When CNN or Bloomberg need a real estate expert, there is only one person they interview.?When CBS or NBC News need analysis of a difficult real estate issue, there is only person they call.?When CNBC or ABC News need a real estate authority on a breaking story, there is only one person they turn to.??When NPR or the Wall Street Journal need a quote from a real estate expert, there is only one person they ask.?Other than Kim Kardashian, probably no one appeared on TV, radio, online, or in print more frequently than this guy!?And “this guy” is Rick Sharga, the number #1 authority on real estate economics.?And we have him exclusively at our October 14th meeting.?Our meeting will be held in the Grand Ballroom (2nd floor), Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission.?Please RSVP at www.LAREIC.com.?
Annual Los Angeles Real Estate Grand Expo.?Our Grand Expo returns on Sunday, October 31, 2021 (Halloween day), 9:00 am to 6:00 pm, a the beautiful Skirball Cultural Center.?We’ve taken over the entire Skirball – it’s all ours for the entire day!?The theme of this year’s Grand Expo is “How to Invest in a Post-Pandemic World.”?The Grand Expo is presented by the Los Angeles Real Estate Investors Club, Sam’s Real Estate Club, Ventura County Real Estate Investors Association, and Realty 411.?There will be twelve national speakers in breakout sessions, and over 70+ vendors (in an area the size of a football field)!?Keynote speaker will be Amy Mahjoory, star of HGTV’s “House Hunter.”?Best of all, the Grand Expo will be FREE and parking is also FREE. You can RSVP and see a partial list of speakers and vendors at www.LAGrandExpo.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 .
领英推荐
This Week. Looking ahead, investors will closely watch Covid case counts, vaccination numbers, and positivity rates around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Beyond that, the Consumer Price Index (CPI) will come out on Wednesday (10/13). ?CPI is the most widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Retail Sales will be released on Friday (10/15). Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key indicator of growth.
Weekly Changes:
10-year Treasuries:???????????? Rose ?012 bps
Dow Jones Average:?????????? Rose? 500 points
NASDAQ:????????????????????????????? Rose ?500 points
?
Calendar:
Wednesday (10/13):???????????Consumer Price Index??????????????????????????????
Friday (10/15):?????????????????????Retail Sales??????????????
Friday (10/15):?????????????????????Import Prices
?????????????????????????????????????
For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club
310-409-8310