Monday Morning Quarterback

Monday Morning Quarterback

(Monday, December 19, 2022)

I’m sad to report that celebrated mountain lion P-22 (who lived in the heart of Los Angeles for more than a decade and became the face of an international campaign to save California’s threatened puma population) was “compassionately euthanized” on Saturday morning because of injuries the cat likely suffered after being hit by a car last week and long-term health concerns.?In a tearful news conference, doctors described a number of chronic illnesses that may have accounted for the mountain lion’s unorthodox behavior in recent months, before announcing P-22 “went to sleep” at about 9 a.m. on Saturday.?The cat was captured in a Los Feliz backyard last week, and had to be tranquilized and taken in for medical evaluation. Days before that, wildlife officials said they had received an anonymous report that P-22 had been struck by a car. Sure enough, the cat suffered a skull fracture, an injury to his right eye, herniated organs and a torn diaphragm, according to Hendrik Nollens, vice president of wildlife health at the San Diego Zoo. In recent days, doctors also discovered P-22 had Stage 2 kidney failure, advanced renal disease, advanced liver disease and was also suffering from a parasitic infection. P-22 was thought to be about 12 years old. P-22 surprised the world in 2012 when his fluffy hindquarters and black-tipped tail appeared on a photograph snapped by a motion-sensing camera in Griffith Park. The adolescent cat had made an improbable trek to Griffith Park from his likely birthplace in the Santa Monica Mountains, journeying through the Hollywood Hills and across the 405 and 101 freeways. The mountain lion has become something of a celebrity in Los Angeles. P-22 was first introduced to the world in a LA Times story. The big cat soon became a bona fide celebrity, appearing in a glossy National Geographic?feature that showed the mountain lion prowling past the Hollywood sign at night, muscles rippling under his tawny fur (see photo above). P-22’s presence in Griffith Park was a reminder that Los Angeles is far wilder than it appears, with one of the highest levels of biological diversity of any big city in North America. Ultimately, a poignant reminder to Angelenos and developers that the city’s residents need to find better ways to coexist with nature. Speaking of nature, let’s get down into the weeds…

Fed Hikes Interest Rate by Half a Percentage Point. Last Wednesday, as expected, the Federal Reserve raised its benchmark interest rate by half a percentage point and signaled more tightening next year as it continues to battle high inflation.?It’s a fight that’s expected to slow our economy and raise unemployment. The half-point increase brings the federal-funds rate up to a range of 4.25%-4.5% (the highest level since 2007). The central bank has raised rates from a level of near zero in March to try to dampen inflationary pressures in the wake of the pandemic. In new projections, Fed officials penciled in 5.25% as the top end for its benchmark rate. That’s higher than their September forecast of 4.75%. Powell himself said it was impossible to know if a recession would occur, and if one does, how long it would last or how deep it would be. Higher borrowing costs are expected to depress our economy in 2023. The median forecast among Fed officials is for tepid growth, at an annual rate of 0.5%. That’s down from the prior forecast of a 1.2% growth rate. Their forecast sees a slightly stronger growth rate returning in 2024. Officials project the unemployment rate will rise to 4.6% in 2023 from 3.7% in November. As a result, Fed officials project steady declines in inflation, starting with a drop to 3.1% in 2023 and then moving to a more normal 2.1% by 2025.?

The Current Housing Cycle Landscape. As you fondly recall, from May 2020 to May 2022, home prices increased 1%–2% per month almost everywhere. Demand was unquenchable, supply was low or non-existent, and home builders were recording the strongest margins in history. Rental demand boomed as well. However, that party is now over! Housing demand significantly cooled starting in the spring of 2022, first in the markets that are heavily dependent on employment in disruptive tech industry investment, and then nationwide as the negative ripple effects of sharply rising mortgage rates resulted in economic uncertainty, deteriorating consumer sentiment, and a massive reduction in home buyer ability to qualify for a mortgage for the home they wanted. While all markets have slowed, the dynamics are not the same. John Burns Consulting labels the major markets in one of three housing cycle stages:?Plateauing,?Slowing, or?Falling:

?1.???Plateauing. Atlanta, Charlotte,?Indianapolis,?Orlando, and Tampa experienced significant home price appreciation, in-migration, and job growth during the pandemic (prompted by buyers searching for affordability).But markets in the Plateauing phase are now faced with limited sales growth and decelerating home price appreciation, leading to shrinking investment returns.

2.???Slowing. In-migration and job growth, fueled by the proliferation of work-from-home policies, set these markets apart as higher wage workers relocated due to the relative affordability—most notably?Dallas,?Jacksonville, and?Raleigh-Durham. But markets in the Slowing phase face alarming affordability levels, decelerating (or even declining) home price appreciation, and rapidly slowing sales—making investments less attractive.

3.???Falling. Austin,?Sacramento, and?Salt Lake City, all standouts for in-migration and robust, tech employment demand / job growth throughout the pandemic, have reversed course quickly. Phoenix?and?Riverside-SB?have also reversed course quickly, in part due to significant speculative investment that drove prices up quickly. But these major markets and others have now reached the Falling phase of the cycle, characterized by flat or declining prices, limited capital investment, and shrinking housing demand.

Home Prices Fall All Over Southern California. In a related story, Southern California home prices fell in November, marking the fifth time in six months that prices declined amid a broad slowdown in the housing market. The six-county region’s typical home price dropped 0.9% from October to $815,911 last month, according to data released by Zillow. The typical price (which Zillow defines as roughly the average of the middle third of the market) is now 6.3% below the peak reached in May. Home values are broadly falling?for the first time in a decade because borrowing costs have exploded this year and priced many people out of the market. Mortgage rates have more than doubled to the mid-6% range, a result of high inflation and the Federal Reserve’s attempts to fight it. In individual Southern California counties, home price declines?from the peak range from a 3.5% drop in San Bernardino County to an 8.6% drop in Orange County. In our own Los Angeles County, prices are down 7%. The declines aren’t enough to offset the rise in borrowing costs, even though mortgage rates have come down from recent highs?of just over 7%. For example, if in November someone bought the typical priced home in L.A. County, and received the prevailing mortgage rate of 6.5%, their monthly payment would still be $360 more than if they bought the typical priced home at May’s peak since rates were lower then, according to a Zillow analysis that assumed 20% down payment in both cases. Many analysts expect home prices will keep falling in 2023. Here is how home prices changed last month in each of the six Southern California counties.

?·????In Los Angeles County, the typical home price fell 0.5% from October to $842,752 last month. Prices are now 6.3% lower than the county’s peak reached in May.

·????In Ventura County, the typical home price rose 1.2% from October to $837,891 last month. Prices are now 3.9% lower than the county’s peak reached in May.

·????In Orange County, the typical home price fell 3.4% from October to $1,014,194 last month. Prices are now 8.6% lower than the county’s peak reached in May.

·????In Riverside County, the typical home price fell 0.5% from October to $599,428 last month. Prices are now 4.6% lower than the county’s peak reached in June.

·????In San Bernardino County, the typical home price fell 0.6% from October to $523,830 last month. Prices are now 3.5% lower than the county’s peak reached in June.

·????In San Diego County, the typical home price rose 0.1% from October to $877,278 last month. Prices are now 7% lower than the county’s peak reached in April.

Foreclosures Increase By 64 Percent In November. ATTOM Data Resources released its November 2022 “Foreclosure Market Report,” which shows there were a total of 30,677 U.S. properties with foreclosure filings?(i.e. default notices, scheduled auctions or bank repossessions) up 57 percent from a year ago. Nationwide one in every 4,580 housing units had a foreclosure filing in November 2022. States with the highest foreclosure rates were again: Illinois (one in every 2,401 housing units with a foreclosure filing); Delaware (one in every 2,736 housing units); New Jersey (one in every 2,916 housing units); South Carolina (one in every 3,195 housing units); and Wyoming (one in every 3,237 housing units). Lenders repossessed 3,770 U.S. properties through completed foreclosures (REOs) in November 2022, up 64 percent from last year. States that had the greatest number of foreclosure starts in November 2022 again included: California (2,244 foreclosure starts); Texas (2,114 foreclosure starts); Florida (1,709 foreclosure starts); New York (1,575 foreclosure starts); and Illinois (1,243 foreclosure starts). Those major metropolitan areas with a population greater than 1 million that had the greatest number of foreclosure starts in November 2022 included: New York, NY (1,593 foreclosure starts); Chicago, IL (1,028 foreclosure starts); Houston, TX (685 foreclosure starts); Miami, FL (657 foreclosure starts); and Los Angeles, CA (642 foreclosure starts).

Century Plaza Hotel Foreclosure is Postponed. Speaking of foreclosures, new investors frequently think that only houses go into foreclosure.?But that is simply not true.?All kinds of properties (both residential and commercial) go through foreclosure.?Take for example, the legendary Century Plaza Hotel in Century City. The trustee’s sale of the $2.5 billion Century Plaza redevelopment in Century City has been rescheduled for February. (The sale was originally set for Dec. 14.)?In 2008, Next Century Partners bought the historic Century Plaza hotel at 2050 Avenue of the Stars (which is a part of developer Michael Rosenfeld’s Woodridge Capital Partners). JPMorgan provided a $446 million senior loan and Colony Capital provided $120 million in mezzanine financing. Additionally, some 900 foreign investors each contributed $500,000 in loans in exchange for seeking a permanent visa in the U.S. through the federal EB-5 Program. (The little known United States EB-5 Visa Program allows eligible immigrant investors to become lawful permanent residents by investing substantial capital to finance a business in the U.S. that will employ at least 10 American workers.) After endless delays, construction finally began until 2016 after Rosenfeld finally received city approval. Despite the substantial loans, construction delays and cost increases forced Rosenfeld to borrow more money. Rosenfeld borrowed another $1.2 billion from Motcomb Estate (controlled by brothers David and Simon Reuben), which paid off JP Morgan and moved Motcomb into first priority position (ahead of Colony Capital and the EB-5 lenders). Construction on the complex (which features two 44-story residential towers including 268 condos and 94,000 square feet of retail) was finally completed last year following further pandemic-related construction delays. But when Rosenfeld defaulted on $1.8 billion in loans, Motcomb Estates (who hold more than $1.2 billion worth of debt on the project), filed a Notice of Default triggering foreclosure proceedings against the Century Plaza property in September. Then, DigitalBridge (formerly Colony Capital) and the EB-5 Lenders sued Motcomb Estates in state court seeking to protect their positions as junior lienholders in the foreclosure. As reported by the Real Deal, the Reuben (via the brothers’ investment entity Motcomb Estates), reached a last-minute truce with lenders DigitalBridge and the EB-5 lenders to push back the foreclosure auction to Feb. 23. Stay tuned for updates.

How Much Do You Need To Earn To Afford A House In LA? Los Angeles Times reports that the annual income needed to buy a home in Los Angeles skyrocketed past $220,000 this fall, with higher mortgage rates and inflation cutting deeper into household incomes.?That means the ability to own a home is a goal inching further and further away from more families and households in Los Angeles (where the median annual household income in 2020 was only $65,000). In sharp contrast, the yearly salary needed now to buy a median-priced home in L.A. (and comfortably make the mortgage payment) is now $221,592, up nearly 41% from last year, according to Redfin. Across the U.S., home buyers need to earn $107,281 a year, or 45.6% more, in 2022 compared with the previous year to buy a typical home. Meanwhile, home prices have remained relatively steady, meaning that those who can still afford a home need to readjust their budgets, while others have been priced out of the market all together. The biggest spike has been in Florida, where the average mortgage payment increased more than 73%, and where an annual salary of $131,535 is now needed to afford a home. The salary needed to buy a median home increased to $128,892 in Miami as well, a rise of more than 63% in a single year. In 93 metro areas analyzed, Redfin found all of them needed at least a 30% salary increase to buy a median-priced home. Prospective home buyers in at least half those areas needed to make a minimum of $100,000 a year.

Russell Westbrook Drops $37 Million on House Across the Street From LeBron James.?Laker fans may be thinking Russell Westbrook will soon be traded but don’t tell that to Westbrook. I say this because Laker star Westbrook just paid $37 million for a mansion in Brentwood. It ranks as Brentwood’s priciest home sale so far this year.?When he was deciding whether to purchase the mansion he was probably thinking “why should I drive to Crypto.com Arena for every game? If I move across the street from LeBron, I can probably hitch a ride in James’ limo.” Sure enough, the house is directly across the street from James’ humble abode. But the teammates probably won’t be carpooling anytime soon. (Someone forget to tell Westbrook that James’ primary residence is actually over at Beverly Crest, where he paid $36.75 million?for a Mediterranean-style compound in 2020.) Westbrook closed the deal off-market through his limited liability company, Gifted 999. The seller is British heiress Petra Ecclestone, the daughter of Formula One billionaire Bernie Ecclestone. She made a hefty profit after buying the residence newly built for $22.7 million in 2019. Photos are scarce since the property never officially surfaced for sale, but aerial images show that the modern farmhouse boasts a black-and-white exterior with tall hedges that protect it from the street. Out back, the half-acre estate adds a deck overlooking a swimming pool. A native of Long Beach, Westbrook played for Leuzinger High School before a standout college career at UCLA, where he led the Bruins to two Final Four appearances. The 33-year-old was drafted by the Seattle SuperSonics, which relocated and were renamed the Oklahoma City Thunder. In Oklahoma City, he was named NBA MVP in 2017.?Ultimately Westbrook spent time with the Rockets and Wizards before joining the Lakers in 2021.

“How to Get Started Investing in Multi-Family Properties” Besides single-family residences, the assets most investors want are multi-family (aka multi-residential) properties. And the person to help you get started as a general partner or passive investor is boy-wunderkind Abbas Mohammed. Abbas owns (alone or in multiple partnerships) over 1,500 multi-family units in over 20 different complexes in the United States. And here’s the amazing thing: Abbas is only 24 years old!?So if you’re 24, what are you waiting for??And if you’re over 24, what are you waiting for!?(If you’re under 24, please help me with my computer.)?Abbas will be our special guest at our January meeting. The title of Abbas’s presentation is “How to Get Started Investing in Multi-Family Properties.” Thursday night, January 12, 2023, 6:30 to 9:30 pm. Come early and enjoy our Vendors Expo. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034.?FREE Admission.?Metered street parking. RSVP: LARealEstateInvestors.com.

Vendors Expo Returns! Your first New Year’s Resolution for 2023 should be to attend our "Real Estate Vendors Expo."?Thursday night,?January 12, 2022. The Vendor Expo opens at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as you invest in real estate. Our Vendor Expo will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034.?FREE Admission.?Metered street parking. Please RSVP at www.LARealEstateInvestors.com.

LAC-REIA Benefits Program. If you’re looking to save money during this inflationary economy, we’ve got the solution for you. Our new Benefits Program offers free services, plus thousands of discounts on groceries, restaurants, prescriptions, gasoline, and travel. Save hundreds of dollars every month. The cost is only $14.97 per month. And here’s the best news of all. You can sign-up for the first 30-days for FREE. Yes absolutely FREE!?So you have nothing to lose, everything to gain, and money to save! Register at www.LacreiaBenefitsProgram.com. (Enjoy the 30-day free trial by using code “LACREIA30” when you register).??

New “LARealEstateInvestors.com” Podcast.?We are so very excited to announce our new podcast, "LARealEstateInvestors.com" (named after our domain) hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor forever!?No one is more experienced in local Southern California real estate than Bill Gross. Each week, Bill interviews real estate professionals sharing their insights and advice for real estate investors. Every Tuesday live at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.

This Week.?Investors will be looking for guidance on the magnitude of future rate hikes and bond portfolio reduction. Housing-market data this week includes Housing Starts which will be released on Tuesday by the National Association of Home Builders. The Conference Board will release its Consumer Confidence Index for December on Wednesday. Existing Home Sales will also come out on Wednesday from the National Association of Realtors. The Core PCE Price Index, the inflation indicator favored by the Fed, will be released on Friday by the Bureau of Economic Analysis.

Weekly Changes:

10-year Treasuries:????????????Fell????010 bps

Dow Jones Average:??????????Fell????500 points

NASDAQ:???????????????????????????Fell????200 points

?Calendar:

Tuesday (12/20):????????????????Housing Starts

Wednesday (12/21):???????????Existing Home Sales

Friday (12/23):????????????????????Core PCE

?For further information, comments, and questions

?Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

[email protected]

310-409-8310