Monday Morning Quarterback

(Monday, August 12, 2024)

Historic changes are coming to home buying this month. Here’s what you need to know. The changes, which will to go into effect on Aug. 17, are meant to help consumers, not hurt them, the real-estate industry rationalizes. They are part of a $418 million nationwide settlement agreement?between the National Association of Realtors, several real-estate brokerages (defendants) and a group of home sellers (plaintiffs). The home sellers had filed a lawsuit that went to trial in October 2023, in which they accused the NAR and the brokerages of colluding to artificially inflate real-estate commissions. The jury sided with the plaintiffs, imposing fines and requiring the NAR to make changes to the way their agents operate. “It’s the most significant change to real estate in over 100 years,” Adam Hopson, chief strategy officer at Flyhomes, a real-estate startup, told MarketWatch. “And it will fundamentally change the buyer-agent dynamic.”?But the industry remains divided over whether the changes represent a win or a loss for home buyers. On Aug. 17, two big changes go into effect: Real-estate agents associated with the NAR will have buyers sign contracts before they show them any houses. In addition, the Multiple Listing Service, where agents list homes that are on the market, will no longer display the commission a buyer’s agent will get if they sell a house. The latter change stems from the lawsuit filed by home sellers, who argued that the current practice of a homeowner listing a house and paying a 6% commission that’s split between the agent selling the house and the agent helping the buyer is unfair. An NAR spokesperson told CBS MarketWatch that offers of compensation have “been and will continue to be negotiable between agents and their clients.” They added that fees can take multiple forms, such as fixed commissions paid by clients, fees for services or concessions from a seller to a buyer through closing costs, or a portion of a listing broker’s fee.?Along with the agent contracts, the other major change is that buyers are now on the hook to pay their agent a commission.?That fee was previously paid by the seller. When a homeowner sold their home, they would pay a fee, usually 6%, to the real-estate agents involved in the transaction. Now the seller is only paying the agent who helps them sell the house, not the agent who is helping the buyer.?But it will take time to see how this new format actually works in practice. Meanwhile, back at the ranch…

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How Far And How Fast Will Fed Cut Rates. With U.S. inflation softening and concerns abating that our economy is overheating, economists are fairly certain the Federal Reserve will lower its benchmark interest rate in September for the first time this cycle. But what happens next is up in the air. “The terrain is bumpy and what makes it hard is the Fed is on a tightrope,” said Diane Swonk, chief economist at KPMG Economics. For the past year, the Fed has held its policy rate steady in a range of 5.25%-5.5%. That’s well above the 3% rate that is seen as a “neutral” level of rates as the central bank kept policy rates high to slow demand and dampen inflation. Fed officials haven’t even begun to discuss their thinking about the broader monetary easing cycle. Left to their own devices, economists have divided into two main camps. One sees a “recalibration” with the Fed cutting rates by 75 or 100 basis points before stopping. The other camp thinks the Fed will pause after the first hike and then engineer a steady string of cuts that brings the bench-mark interest rate down to the 3% neutral level. Traders in derivative markets are in the latter camp. They have priced in 175 basis point of rate cuts which will push rates down to a range of 3.5%-3.75% by next summer. For some economists that’s reminiscent of January when markets had priced in six rate cuts for 2023. The Fed’s own forecast shows a more gradual pace of cuts. The latest “dot-plot” projections show one rate cut in 2023 followed by four rate cuts in 2024, essentially a once-per-quarter pace. This mirrors the “mid-cycle adjustments” the Fed has pursued in the early 1990s and in 2019, two cutting cycles when the central bank wasn’t battling a recession. But only if the labor market starts to weaken would the Fed start to cut more. All sides acknow-ledge that the policy path could be overturned by the fiscal policies of the new president next year. The Fed used the meeting “to plant the seed that the first move” is on the table for September, said economists at Oxford Economics, in a note to clients.

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CA Rent Control Back On The Ballot Again. Sky-high rent is among Californians’ biggest concerns. Nearly 30% of tenants spend more than half their income on rent. The median rent is $2,850 a month, 33% higher than the national average. Two propositions on the November 5 ballot address this issue — though one does so in a rather roundabout way. The more straight-forward one is Proposition 33, which would give local governments more control over rent caps. Currently, cities cannot limit rents on single-family homes, apartments built after 1995 and new tenants. Prop. 33 would change that, essentially ending the state’s “limits on limits.” Tenant advocates say that, if passed, Prop. 33 would keep more people housed. But voters have rejected two similar ballot measures in 2018 and 2020. Landlord groups opposing this year’s measure say stricter rent control will make housing less profitable, worsening the housing crunch. To stop the tenant foundations from bankrolling another one, landlord groups are backing Prop 34. It would require California health care providers (but really, just the AIDS Foundation) to spend at least 98% of revenue from a specific prescription drug discount program on “direct patient care” — or risk having their state license and tax-exempt status revoked and losing out on government contracts. Supporters, including the California Apartment Association, say the ballot measure is a simple case of accountability, while the tenant groups argue it’s a political hit job. Stay tuned.?

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Kanye West Finds a Buyer for His Stripped-Down Malibu Manse. Some celebrities beautifully renovate their homes, others destroy them. Looks like Kanye West’s “Tadeo Ando”–designed Malibu home (or at least what’s left of it, after the rapper fashioned it into what the New Yorker?called “a ruin”) still has value to someone. TMZ?reports that the roughly 4,000-square-foot, largely gutted beachfront property was put into escrow on Thursday of last week. West reportedly ordered essentials like plumbing, electricity, doors, and windows removed from the already minimalist structure as part of his “reimagining.” The bare-bones abode has been in the news quite a few times since the Yeezy creator paid financier and art dealer Richard Sachs a whopping $57.3 million?for it in 2021; West priced the mansion at $53 million in December before slashing?$14 million off that in April. It is not yet known how much the mystery buyer plunked down for the starchitect-designed, rapper-remixed manse. Tony Saxon, a contractor hired to redo the interiors in the musician’s vision, told the?New Yorker?“It’s funny—and not funny, in a way—to say, ‘I’m the man who single-handedly destroyed this architectural master-piece.’ But I pretty much just did.” With design briefs centered around “clarity and simplicity” coming from West, Saxon said he was instructed by the “Love Lockdown” rapper and his wife, architect Bianca Censori, to dismantle cabinets, counters, and walls. Saxon is now in the middle of a lawsuit he brought against West, claiming that the creative owes him a six-figure sum for unpaid work done on the house. West employed Jason Oppenheim, co-owner of real estate brokerage The Oppenheim Group?and one of the stars of Netflix’s?Selling Sunset, to find a buyer. “It will take several million dollars for the house to be finished,” Oppenheim told the Wall Street Journal?in December. He also claimed that “much of the architectural integrity and the architectural value of the house exists.” By the way, architect Ando?is the 1995 Pritzker Prize winner?and his minimalist homes, built from concrete poured on-site, are coveted in the art and architecture worlds. Last year, Beyonce and Jay-Z?dropped $200 million on one of his designs, purchasing it from art collector and soap opera heir Bill Bell Jr.—and?California’s most expensive home in the process.

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Owner of 103-Year-Old Calif. Steakhouse To Rebuild After Fire. An early-morning fire seriously scorched the storied Pacific Dining Car restaurant, the 103-year-old Los Angeles steakhouse. On Saturday, Los Angeles Fire Department firefighters arrived at 1310 W. Sixth St. at around 12:14 a.m. to battle flames consuming the exterior part of the building. After nearly an hour, 75 firefighters put the flames out, according to the fire incident report. An investigation for the cause of the fire is underway. Since Saturday, multiple news outlets reported that the restaurant, which has been temporarily closed since 2020, sustained significant damage. But in a statement to SFGATE, Pacific Dining Car President Wesley Idol III shared that the damage impacted only a portion of the attic and that restoration efforts are already underway. Pacific Dining Car first opened under the ownership of Fred and Grace Cook in 1921. The restaurant was designed to resemble a railway train car with its curved ceiling and romantic setting. Pacific Dining Car was a favorite among Hollywood’s biggest stars, including Mae West,?Louella Parsons and Mickey Cohen, according to the restaurant’s website. Later, the restaurant became the backdrop to TV shows and films. It was featured in “Training Day,” starring Ethan Hawke and Denzel Washington, and the hit TV series “Shameless.” In 2020, the Idol family auctioned off much of the kitchen equipment and decorations, including the restaurant sign for $7,250, after the restaurant closed during the pandemic. At the time, Idol told Los Angeles Magazine that the auctioned goods would be replaced and that he planned to reopen “someday.”?Pacific Dining Car also had a second location in Santa Monica, which closed for good in 2020. Despite the lengthy wait and recent fire, Idol told SFGATE he intends to keep his plans intact. While he couldn’t share an expected opening date at this time, he confirmed that the restaurant will reopen under the same name and concept it has always had for the past 103 years. Of course, I personally don’t believe him. Around 1994, Idol and his father Wes Idol II transitioned Pacific Dining Car into a rare 24-hour fine dining restaurant that helped attract troves of politicians and tourists alike. During its dormancy, Pacific Dining Car became a historic-cultural monument in 2023.?

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Want Affordable Housing? Build Homes, Cut Government. Listen to enough politicians and it won’t take long to hear about the lack of “affordable” housing.?This was going on long before inflation returned after COVID. Everyone wants affordable things. So let’s focus on – housing.?Almost everyone thinks home prices and rents are just too damn high. Many blame this on us greedy landlords and investment firms buying up apartments and homes. President Biden (prior to his withdrawal from the presidential race) said he wanted to impose a form of national rent control on “corporate” landlords. And yet, the real problem is that a typical home today costs much more relative to income than it used to.?The median price of an existing single-family home that sold in 2022 was about $390,000, which was 5.2 times higher than median household income of $74,580 that year (the most recent year for which median income is available). And I suspect 2024 will be even higher than 5.2! By contrast, back in 1968, the median price of an existing single-family home was only 2.6 times median household income.?As recently as 2011, the bottom of the housing bust, the ratio was only 3.3 and even at the peak of the housing boom in 2005, the ratio was 4.7.?No wonder so many people are finding housing hard to afford. But this is NOT due to greedy landlords and homebuilders!?I point my finger at the government. Government entities of all kinds restrict building and add massive costs through regulation, which all limit housing supply. And don’t forget the inflation caused by excess money printing during the pandemic. Meanwhile workers in the US have not seen their wages keep up. On top of this there has been massive immigration, which also increases the demand for housing. Nevertheless, while homebuilders have not built enough new homes for basically the last 15 years (since the housing bust of 2007-2009).

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Kamala Harris’s Homes. Kamala Harris’s homes over the years have included numerous California pads, a Washington, DC, condo, and the official residence of the vice president. Of course, the California native now has her eye on a new pad: 1600 Pennsylvania Avenue. If the 49th veep ascends to the presidency (and that’s a big “if”), she’ll be shuttling her belongings from Number One Observatory Circle, the official vice presidential abode, straight to the White House.

A California native, Harris spent most of her early years in Berkeley but moved to Canada when she was a young teen. After graduating from Howard University in Washington, DC, Harris returned to California to attend law school and began her career there. She entered her term as vice president owning three properties, but quickly sold two of them once she was sworn in. She and her husband still own a home on Kenter Avenue in Brentwood. Below, we take a look at some of the places the presidential hopeful has called home.

Berkeley home. Although she was born in Oakland, California, most of Harris’s early childhood was spent in a nondescript duplex apartment?located above a day care facility in an area of West Berkeley known as the flatlands (her parents met as graduate students at UC Berkeley).?

Oakland apartment. It was back to her place of birth once Harris began her law career working as a prosecutor in Alameda County. Her Oakland apartment?was a one-bedroom condo with floor-to-ceiling windows that provided views of Lake Merritt, a 155-acre lake in the center of Oakland. Harris reportedly paid $116,000 for the 1,125-square-foot aerie and sold it in 1998 once she began working at the district attorney’s office in San Francisco.

San Francisco apartment. Located in San Fran’s trendy SoMa neighborhood, Harris’s approximately 1,000-square-foot penthouse occupied two floors—with the bedroom, full bath, and walk-through closet located in the loft area and a double-height living space that included living, dining, and kitchen areas, plus a half bathroom and an alcove. In 2021, assured that she’d be spending most of her time in Washington, DC (at least for the foreseeable future) Harris said goodbye to her San Francisco loft?less than one month after being sworn in as the 49th vice president of the United States Not only was the sale swift, but it was also profitable. She reportedly?only paid $489,000 for the place back in 2004, selling for $799,000, almost doubling her investment.

Brentwood home. Vice President Harris and her husband, Doug Emhoff, still own a home in Brentwood, estimated by Zillow to be worth $5 million. Emhoff reportedly?bought the manse in 2012, and Harris became co-owner once they tied the knot two years later. The four-bedroom home is where the couple lived before Harris took up her post at the White House.

Washington, DC, condo. When Harris became a US senator in 2017, she promptly bought a luxury condo?in the Westlight building, which was completed only one year prior and is located in DC’s upscale West End neighborhood. Harris paid $1.775 million for her new digs. Six months after she and first gentleman Doug Emhoff moved into the official vice president’s house, she listed the condo for $1.995 million, ultimately selling it for $1.85 million.

The official residence of the vice president of the United States. Ever since Walter Mondale took up residence there in 1977, every vice president of the United States has called the white 19th-century Queen Anne–style house at Number One Observatory Circle home during their tenure. Originally built for the superintendent of the United States Naval Observatory, the 1893 build sits on the grounds of the USNO in northwestern Washington, DC, 2.5 miles from the White House.?

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Vendors Expo Returns!?Our world-famous, super-duper "Vendors Expo" returns on Thursday night,?September 12, 2024. The Vendor Expo opens starting at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Stick around after and enjoy our guest speaker. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034.?FREE Admission.?Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

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Tax Deed Investing With Jason Porter. Thursday night, September 12, 2024. Jason has been speaking on real estate investing strategies, entrepreneurship, and peak personal performance since 1998.?However, his focus since 2008 has been the little understood investing strategy of “Tax Deed Investing.”?The amazing thing about tax deeds is that they offer investors the opportunity to invest in real estate cheaper than any other form of acquisition.?Jason’s students’ target purchase price is generally 10% to 50% of After Repaired Value (“ARV”).?Even in today’s hyper-competitive market, Jason’s students routinely purchase properties for 40 cents on the dollar and below. Tax deed investing is exciting because Jason teaches investors how to find tax deeds and how to buy them as low as possible.?He has spoken in 17 countries to audiences as large as 12,000 investors.?And on September 12th he’s with us.?We know you will enjoy Jason. Iman Cultural Center, 3376 Motor Avenue, Los Aneles, CA 90034 (between National and Palms. Free Admission. RSVP at our website: www.LARealEstateInvestors.com.

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Basic Training Investing Boot Camp. Saturday, August 24, 2024, 9:00 am to 6:00 pm, will be our semi-annual Basic Training Boot Camp. Everything you ever wanted to know about real estate investing but were afraid to ask. Iman Cultural Center, South Hall, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034.The cost of the Boot Camp is $149.00 per person if paid before August 17. After August 17, the price jumps to $249.00! So don’t wait to register. (Gold Members and former Boot Campers can attend for FREE, but still need to register.) Plus free parking. You can register at LARealEstateInvestors.com.??

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Cash Flow Chronicles Podcast.?We are so very excited about our podcast, "Cash Flow Chronicles" hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor since the Ice Age!?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. Every Tuesday at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.?

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This Week. Investors will continue to look for Fed officials to elaborate on their plans for future monetary policy. Right now, economists (and Las Vegas) are betting ?on a 25-50 point reduction in the Fed Funds rate in September. For economic reports, attention will be focused on the inflation data. The Producer Price Index (PPI) will come out tomorrow, Tuesday from the Bureau of Economic Analysis. The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services and will be released on Wednesday from the Bureau of Labor Statistics. Import Prices and Retail Sales will be released on Thursday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts will come out on Friday from the Census Bureau.

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Weekly Changes:

10-Year Treasuries:???????????Rose??015????bps

Dow Jones Average:?????????Fell???? 300????points

NASDAQ:??????????????????????????Fell???? 100????points

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Calendar:

Wednesday (8/14):????????????? Consumer Price Index

Thursday (8/15):??????????????????Retail Sales

Friday (8/16):???????????????????????Housing Starts

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For further information, comments, or questions:

Lloyd Segal President

Los Angeles County Real Estate Investors Association

[email protected]

310-792-6404

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