Monday Morning Quarterback

(Monday, September 23, 2024)

Half A House, Half A Million? I ask this question because a few months after being toppled by a towering pine tree, a Monrovia home, or what’s left of it, is up for grabs for $499,999 (see the photo above). The humble bungalow made headlines?when it was crushed by a tree in May with two renters and two dogs inside. None were injured, but the tree took out their car, a fence and most of the roof. What’s left of the property looks like a post-apocalyptic set piece complete with missing walls, loose wires and no ceilings. Some would call it un-salvageable. Listing agent Kevin Wheeler quipped that it’s an “open floor plan.” According to the listing, the home still has one bedroom and one bathroom in 645 square feet, but those are based on measurements taken before it was destroyed. Wheeler said the electricity is turned off, but the plumbing still works. The back door, which the renters escaped through after the tree came down, still stands. Monrovia ordinances?state that demolitions on properties more than 50 years old require a review. But since the house was destroyed by an act of God, a review isn’t required, according to Wheeler. So house-hunters can buy what’s left of the home and rebuild without dealing with some of the red tape typically required. “There’s been a lot of interest so far because demand is so high and inventory, especially at this price, is so low,” Wheeler notes. He added that multiple investors tracked down the homeowner with low-ball offers to buy the home days after it was crushed. “They were trying to buy it for $250,000 or $300,000,” he says. “But market comparisons for ‘similar properties’ in Monrovia put the value at $500,000.”?What similar properties??Anyway, in other real estate news, let’s get under the hood…

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Home Builder Confidence Edges Up as Rates Lower. Reuters reports that U.S. home builder confidence edged up in September as mortgage rates fell, breaking four months of consecutive declines, but remained at relatively low levels as rising costs continued to impede construction. Specifically, the NAHB/Wells Fargo Housing Market Index of builder confidence rose to 41 this month from 39 in August, the National Association of Home Builders reports. It was the first positive view of future home sales since May. The central bank drove up interest rates between 2022 and 2023 to the 5.25%-5.50% range to bring down high inflation, causing a slowdown in the housing market, but mortgage rates have been falling as the Fed finally started rate reductions. The average 30-year fixed rate mortgage rate recently declined to 6.20% according to Freddie Mac, from a high of nearly 8% last October. Fed rate cuts "will produce downward pressure on mortgage interest rates and also lower the interest rates on land development and home construction business loans," NAHB Chief Economist Robert Dietz said in a statement. "Lowering the cost of construction is critical to confront persistent challenges for housing affordability." Data earlier this month showed that U.S. construction spending fell more than expected?in July as increased supply weighed on single-family homebuilding. NAHB also cites more competition among builders from rising housing inventory as a potential headwind. However, sentiment on sales expectations in the next six months rose four points to 53 in September from the prior month. The easing of mortgage rates also allows builders to hold off on home price reductions. The share of builders cutting prices fell this month for the first time since April, while the average price concession was 5% (the first time it has been below 6% since July 2022).

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Housing Starts Rose in August. Don’t get too excited about the jump in housing starts in August. Although they rebounded for the month, they remain below the pace of 2021-2023.?The good news for future homebuyers is that builders have been focusing their efforts on completing projects already in progress.?Completions jumped 9.2% in August to a 1.788 million annualized rate, the highest pace since the run-up before the Great Financial Crisis.?With strong completion activity and tepid growth in starts, the total number of homes under construction continues to fall, now down 10.1% since the start of 2024.?That type of decline is usually associated with a housing bust or recession. The lack of new construction is why home prices have remained elevated while rents are still heading up in much of the country: we are building too few homes. The home building sector seems strangely slow given our population growth and the ongoing need to scrap older homes due to disasters or for knockdowns. Economists think government rules and regulations are likely the major hurdle for builders in much of the country, but home construction might also be facing headwinds from a low unemployment rate (which makes it hard to find workers) as well as relatively high mortgage rates.?That said, there are some tailwinds for housing construction, as well.?Many owners of existing homes are hesitant to sell and give up their fixed sub-3% mortgage rates, so many prospective buyers will need new builds.?In addition, Millennials are now the largest living generation in the US and have begun to enter the housing market in force, which represents a demographic tailwind for activity.?

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Rancho Palos Verdes Has Been At Risk Of Landslides For Decades. Rancho Palos Verdes could be described as a geological ticking time bomb. The affluent city sits atop steep cliffs overlooking the Pacific Ocean that, for hundreds of years, have been slowly shifting and giving way. Now, that movement is accelerating. Whereas the ground slid downward 8 inches annually in years past, it has lurched 13 inches per week in some places between July and August. The resulting landslides have ripped apart seaside mansions, buckled roads and forced Southern California Edison to cut electricity to nearly 250 homes to avoid the possibility of fires. “Eight inches a year is measurable and they have had to do repairs to the road that crosses the area, but now it’s moving so rapidly that they’ve had to just close a number of roads, turn off the gas supply and cut electricity,” said Eric Fielding, a geophysicist at NASA’s Jet Propulsion Laboratory in Pasadena, California. “It’s crazy but you can’t keep re-installing electric wires every week.” In Rancho Palos Verdes’ Portuguese Bend neighbor-hood,?140 homes are without power indefinitely, while around 60 in the city’s Seaview section will be without service for a week or longer. Gov. Gavin Newsom last Tuesday declared a state declared a state of emergency in the city. The situation is the unfortunate culmination of intense rainfall over the past two years, experts say. The Palos Verdes Peninsula is composed of weak rocks and beds of clay that prevent water from draining properly belowground. So during periods of heavy rain or high tectonic activity, the bluffs can slip, turning constant, slow-moving landslides into catastrophes. It’s not yet clear what, if anything, can be done to stop the land from moving. “Basic physics says that once a body is in motion, it wants to stay in motion,” said Jonathan Godt, the landslides hazards program coordinator at the U.S. Geological Service. The threat to Rancho Palos Verdes is not new. The land beneath the city has been moving for hundreds of years, scientists say, but it was mostly stable until a road construction project in the 1950s triggered the landslide to accelerate.

L.A.’s “Mansion Tax” has collected $375 million. But where is the money going??Nearly two years ago, voters in Los Angeles approved?Measure ULA, increasing taxes on the sale of multimillion-dollar properties with the aim of raising hundreds of millions of dollars each year to help address the city’s housing crisis. Its fate has been uncertain from the start, with opponents pursuing?multiple pathways to try to invalidate it. But the so-called “mansion tax” remains in place and has brought in $375 million in revenue since it went into effect last year. The amount is short of the $600 million to $1.1 billion per year that backers expected but still enough to provide major funding for an ambitious set of programs that housing and tenant advocates have long pushed for — including money to create housing complexes that are run by their residents, funding for lawyers for renters facing eviction, income support for rent-burdened seniors and people with disabilities and programs aimed at protecting tenants from harassment. The measure has faced numerous challenges since it was approved and its ultimate fate is still in some limbo — a state ballot initiative that could have rescinded the tax was blocked?by the California Supreme Court this summer, but opponents have continued challenging the measure in state and federal court. The Howard Jarvis Taxpayers Assn., which filed suit in state court, continues to believe the tax is invalid and is pursuing an appeal after a judge dismissed its case late last year, said Susan Shelley, the group’s vice president for communications. Critics have also alleged that the measure damps?the housing market. Nevertheless, the city has opted to move forward and allocate some of the funds while the cases are being resolved. The tax imposes?a 4% charge on property sales above $5.1 million and a 5.5% charge on sales above $10.3 million.

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Housing Markets in California, New Jersey and Illinois Still have Elevated Risk of Downturns. ATTOM real estate data released a “Special Housing Risk Report” spotlighting county-level housing markets around the United States that are more or less vulnerable to declines, based on home affordability, underwater mortgages and other measures in the second quarter of 2024. The report shows that California, New Jersey and Illinois once again had the highest concentrations of the most-at-risk markets in the country, with some of the biggest clusters in the New York City and Chicago areas, as well as inland California. Less-vulnerable markets remained spread mainly throughout the South, along with parts of the Midwest. The second-quarter patterns (derived from gaps in home affordability, underwater mortgages, foreclosures and unemployment) revealed that nearly half of the counties around the U.S. considered most exposed to potential drop-offs were in California, New Jersey and Illinois. As with earlier periods over the past few years, those concentrations dominated the list of areas more at risk of downturns. County-level housing markets on that list included seven in around New York City, five in the Chicago metro area and 12 in areas of California mostly away from the Pacific coast. The rest were scattered largely around the South as well as other parts of the Midwest and Northeast. At the other end of the risk spectrum, close to half the markets considered least likely to decline fell in Virginia, Wisconsin and Tennessee. 12 at-risk counties are in California: Butte County (Chico), Humboldt County (Eureka), Solano County (outside Sacramento) and Shasta County (Redding) in the northern part of the state, plus Kern County (Bakersfield), Kings County (outside Fresno), Madera County (outside Fresno), Merced County, San Joaquin County (Stockton) and Stanislaus County (Modesto) in central California. Two others, Riverside (pictured below) and San Bernardino counties, were in southern California.

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The Cities With The Best (And Worst) Upward Mobility. Americans born to low-income families?are faring worse than the last generation in most major U.S. cities, a new analysis finds. Why it matters:?“Intergenerational Mobility” (the idea that you'll do better than your parents, your children will do better than you, and so on) is core to the American dream, but is far from a guarantee. I say this because a new analysis from the Census Bureau and Opportunity Insights (a research group at Harvard University) seeks to measure intergenerational mobility at the county level. Researchers compared the average household income at age 27 for Americans born to low-income families in both 1978 and 1992 to get a localized picture of changing opportunities over time. In 38 of the 50 biggest U.S. metro areas, Americans born to low-income families in 1992 were doing worse at age 27 than those born in 1978 at that age. Brownsville, Texas (pictured below), had the biggest increase across generations: Those born in 1992 made $33,500 at age 27, compared to $31,400 for those born in 1978 (up 6.7%; adjusted to 2023 dollars). Philadelphia had the biggest drop, with those born in 1992 making just $27,200 at age 27, compared to $31,200 for those born in 1978 (down 12.8%). “Black children born in 1992 still had poorer prospects of rising up than white children in virtually every county in America, because initial Black-white disparities were so large," according to Opportunity Insights. Bottom Line; changes affecting one generation quickly affect the next, the researchers say, and "thereby generate rapid changes in economic mobility."?"While this carries hope for how opportunity can improve, it also comes with some caution, as communities can experience declining opportunity in a similar timeframe."

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Costliest Places To Do Business. The Los Angeles Business Journal report that Santa Monica is the most expensive city to do business in, not only in Los Angeles County but throughout several Western states, according to a new survey examining the cost of doing business in more than 200 cities. The survey was co-authored by El Segundo economic development consulting firm Kosmont Cos. and the Rose Institute at?Claremont McKenna College. It compares local taxes, fees, business property rents and other costs that businesses face in 216 cities, primarily in Southern California but also in nine Western states plus Minnesota and Texas. As in past surveys, cities in Los Angeles County dominated the highest-cost tier among the cities in the survey, with Culver City, Pasadena, Los Angeles and Burbank also placing in the top 10. “For this first look at every city in Los Angeles County, the major surprise was how uniform it was that L.A. County cities were more expensive than other counties,” said?Ken Miller, director of the Rose Institute and a co-author of the survey. Santa Monica was the only city to achieve the dubious distinction of the highest cost score of 5 in each of the seven categories in the survey. Culver City, which topped that December 2022 survey, slipped to No. 2 this time, with a score of 4.87. Los Angeles, which had also topped several surveys in past years, fell to the No. 5 spot (tied at 4.57 with two other cities in the county). “Don’t get me wrong: Los Angeles still has some of the most expensive business taxes around,” Kosmont admits. “But in some categories, there has been significant progress, and that was just enough to push that ranking down to a 4 instead of a 5.” Kosmont also notes that the 9.5% sales tax in Los Angeles was lower than in several other cities in the county where the sales tax is maxed out at 10.25%. Only one Los Angeles County city (Santa Clarita) was in the lowest cost tier, while only four of the county’s 88 cities (Palmdale, La Habra Heights, City of Industry and La Mirada) placed in the second-to-lowest tier. Miller and Kosmont noted that cities in neighboring Orange, Riverside and San Bernardino counties generally ranked in the middle of the cost index, with a significant portion of the cities placing in the lower cost tiers. By the way, before you ask, the lowest cost score of any city in the survey was Boise, Idaho, at 1.43.

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Basic Training Investing Boot Camp. Saturday, September 28, 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 $249.00 per person. 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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5th Annual Los Angeles Real Estate Grand Expo. We are very excited to announce our 5th Annual Los Angeles Real Estate Grand Expo.?The Grand Expo returns on?Saturday, October 26, 2024, 9:00 am to 6:00 pm.?We're taking over the entire Iman Cultural Center for the day - it's all ours!?The North Hall (vendor exhibition area), the South Hall (workshops), and the middle parking lot (loaded with workshop tents and food trucks). The theme of this year’s Grand Expo will be “Hedge Inflation - Buy Real Estate.” Last year, the Grand Expo was the largest real estate event in California!?We had over 800 investors, 64 vendors, and 12 national speakers!??This year will be even BIGGER!?An entire day celebrating real estate investing and you can be involved. Best of all, the Grand Expo will be FREE to attend.?This Expo is going to be big, really BIG!?

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Cash Flow Chronicles Podcast.?We are so very excited about our weekly 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. For economic reports, Consumer Confidence will come out on Tuesday and New Home Sales on Wednesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday.

Weekly Changes:

10-Year Treasuries:???????????? Rose??010 bps

Dow Jones Average:???????????Rose??500 points

NASDAQ:????????????????????????????Rose??250 points

Calendar:

Tuesday (9/24):???????????????????Consumer Confidence Index

Wednesday (9/25):??????????????New Home Sales

Friday (9/27):???????????????????????Core PCE?

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For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

[email protected]

310-792-6404

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Los Angeles County Real Estate Investors Association Los Angeles County Real Estate Investors Association PO Box 643065 Los Angeles, CA 90064

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