Monday Morning Quarterback

?(Monday, January 8, 2024)

Habitat for Humanity built its brand on building homes from scratch by hand. The nonprofit arms its volunteers with hammers and nails and they build a house for a low-income family. And then they build another one, and another one. Handmade houses constructed one at a time, in the same way houses have been constructed for 125 years. But the Wall Street Journal reports that last week in Eagle, Colorado., Habitat for Humanity tried something different: It installed 16 new homes made in a nearby factory. Thirty-two boxes arrived on trucks and were swung into place by cranes, creating two-story homes with 1,216 square feet of living space inside each. Habitat for Humanity Vail Valley says it was able to build three times as many homes in Eagle this year by using houses purchased from a factory. Building houses in factories has the tantalizing potential to help address the nation’s housing crisis. Factory-built single-family homes can be completed up to 50 percent more quickly and up to 20 percent more cheaply than homes built with standard construction techniques. Given those savings, and the fact that pretty much every other aspect of material life is mass-produced in factories, it may seem surprising that last year, only 2 percent of new homes in the United States were built in factories. To address the housing crisis, government housing policy in recent decades has focused on providing financial aid to renters and homeowners. It hasn’t worked. Giving people more money without creating more housing is a straightforward recipe for driving up prices. Instead policymakers need to focus on the supply side. The government could encourage a shift toward factory-built housing by increasing the consistency of building regulations, by requiring the use of factory-built housing in government-subsidized projects and by investing in the development of new techniques for the mass production of housing. If any of that seems far-fetched, consider that the government has done all of it before, and more, to encourage the adoption of rooftop solar panels. It’s time to pay similar attention to the buildings underneath. In other real estate investment news, let’s get under the hood…

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Housing Starts Increased 14.8% in November. Housing starts increased 14.8% in November to a 1.560 million annualized rate. Starts are up 9.3% versus a year ago. While one month doesn’t make a trend, housing starts now sit at a six-month high, a sign that developers may have finally found their footing in what has been a challenging environment.?While 30-year mortgage rates remain around 7%, they have been on a downward trajectory since peaking above 8% at the end of October.?Given the new short-term interest rate projections the Federal Reserve released last week (where the median forecast was 75 bps of rate cuts in 2024 and not a single policymaker had short term interest rates higher a year from now than they are today) I expect mortgage rates to continue trending downward in 2024, providing a tailwind for sales activity. Yes, housing permits declined 2.5% in November, but the drop was entirely due to permits for multi-units (-8.5%). Notably, permits for single-family homes have increased every month since the beginning of 2023.?In the past year, the number of single-family starts is up 42.2% while multi-unit starts are down 33.1%. This huge gap in the data is due to the unprecedented nature of the last three years since COVID began. Looking at the big picture, a combination of extremely low interest rates and pressure to work from home led to a big migration to the suburbs (and beyond) and high demand for single-family homes.?Then our economy reopened, causing many people to flock back to cities, sparking a boom in apartment projects.?Currently, the number of multi-unit properties under construction is at record levels, going back to 1970, when records began. Now it looks like the move back to the cities has petered out leaving a glut of empty apartments.?Meanwhile, owners of existing homes are hesitant to list their properties and give up fixed sub-3% mortgage rates, so many prospective buyers have turned to new builds as their best and only option.

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Existing Home Sales Increased in November. Existing home sales increased 0.8% in November to a 3.820 million annualized rate.?But sales are down 7.3% versus a year ago.?It was a small gain following five consecutive months of declines, likely the result of the recent decline in mortgage rates.?However, home sales still remain near the slowest pace since the aftermath of the 2008/9 Financial Crisis.?The housing market is facing a series of headwinds, some of them hopefully temporary.?The first (and most significant) has been financing costs, with the 30-year fixed mortgage rate briefly surpassing 8% for the first time in more than two decades.?The good news for investors is that optimism around inflation and a Federal Reserve that effectively declared “mission accomplished” has led to a rapid decline in interest rates across the board. Assuming a 20% down payment, the rise in mortgage rates since the Federal Reserve began its current tightening cycle in March 2022 amounts to a 36% increase in monthly payments on a new 30-year mortgage for the median existing home.?Eventually, the housing market can adapt to these increases, and the recent moderation in rates should help in the short term, but continued volatility in financing costs will certainly cause some indigestion.?In addition, many existing homeowners are reluctant to sell due to a “mortgage lock-in” phenomenon (i.e. buying or refinancing at much lower rates before 2022).?That should limit future existing sales (and inventories).?Case in point, the months’ supply of homes (how long it would take to sell existing inventory at the current very slow sales pace) was 3.5 in November, well below the benchmark of 5.0 that the National Association of Realtors uses to denote a normal market.?A tight inventory of existing homes means that while the pace of sales may resemble 2008, we aren’t seeing that translate to a big decline in prices.?

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Historical Hollywood Estate on Market for $23 Million. From?Los Angeles’ socialite set of the 1920s, to gangster film cult classics if the walls of this Hollywood estate could talk, they’d make for an provocative talk show guest. Built in 1926 by acclaimed architected Roland Coate (other properties of his design are listed on the National Registry of Historic Places) this sprawling, 30-room?property?was first built for Eva K. Fudger in the Spanish Colonial style. Soon after completion, however, the West Coast socialite rented it to Hollywood icon and pioneering aviator, Howard Hughes. With Hughes paying $1,000 for it a month to Fudger during those years, (today that amounts to $17,000 monthly), local media questioned why. The answer can be found in the Hollywood estate’s proximity to the acclaimed Wilshire Country Club, which still exists today. Hughes, naturally, went on to produce iconic films of the period, such as 1927’s Two Arabian Nights, 1930’s Hell’s Angels, and the original Scarface, released in 1932. Hughes remained at the property for two decades, in which affairs with Joan Crawford, Hedy Lamarr, and Katherine Hepburn were documented; and the assumed many parties of Hollywood’s Golden Age within this estate, maintained as more of a secret. A recent renovation by previous owners, Ash Shah and Niroupa Shah – Ash Shah is the restaurateur behind the city’s beloved Danny Trajo brands, including Trejo’s Tacos, Trejo’s Coffee & Donuts, and Trejo’s Spirits – has revived this beautiful property for the 21st?century sensibility. Still boasting the same glorious vistas across the golf course, the Hollywood Hills, and even the Hollywood sign, much of the original architecture remains, granting the estate the same romantic charm and sun-dappled escapism of similar villas found across the Mediterranean. All yours for only $23 million.

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Bradley Cooper Filmed Maestro?at Leonard Bernstein’s Real Home. It’s no small thing to open your doors to a film crew, never mind for a movie that intimately depicts your parents. But that’s exactly what conductor Leonard Bernstein and actor Felicia Montealegre Bernstein’s children did during the production of Bradley Cooper’s movie?Maestro.?Cooper shot at the family’s Fairfield, Connecticut, home which the couple bought in 1962 and Leonard left to his children, Jamie, Nina, and Alexander Bernstein, when he died in 1990. Though Jamie and her siblings were never on set during production, friends who help take care of the property witnessed the prep and described it as if the filmmakers had “picked the house up and taken it upside down and shaken it.” But by the end of filming, everything was returned back to its rightful place. Production designer Kevin Thompson was a part of that careful upturning, as he sought the best way of representing the central characters’ tastes as they manifest in their living space. Research is a part of any production designer’s process and the opportunity to be in the home, never mind shoot there, was an unparalleled route to understanding the film’s two subjects. “The home had not changed much in terms of architecture or wall coverings and things like that, so we were able to actually see the layers of things that Felicia had done to the house,” Thompson explains. “We were also able to get into the intimate aspect of family photos, Felicia’s paintings on the walls, the subjects that she painted, the things in the junk drawer, and there were still traces of them almost everywhere.” In the end, how did the Bernsteins feel about the home’s depiction on screen in the movie?Maestro? “[The home] was amazingly well captured and it looks so fantastic,” Jamie states, adding that the production was blessed with good weather. “Every time our dad conducted outdoors at Tanglewood, at The Shed, the weather would suddenly turn bright and sunny and gorgeous. He had such good luck with the weather up there that they nicknamed it ‘Lenny Weather.’ So Bradley had Lenny Weather too.”

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Hotel in Space Could Be Operational in Just Five Years. If the idea of a hotel in space sounds enticing, you may not have to wait longer than five years. Above Space Development Co. (previously known as “Orbital Assembly”), a company that specializes in designing and constructing space stations, says it will have luxury accommodation in space within “60 months” of securing enough funding for the projects (the company says it would need to be upwards of $1 billion). With two space hotels in the works (Voyager Station?and a more recently announced Pioneer Station) anyone’s next R&R could take place among the stars. Voyager Station, Above’s first proposed space hotel, was originally designed to accommodate 280 guests, though new plans have updated that number to 400. Last year, the company shared designs for a smaller station called Pioneer Station, which would house significantly less people (only 28 at a time) but could be operational sooner than Voyager. To understand how the space stations work, consider a simple demonstration of water spinning in an upside bucket. If the force of a rotating bucket is greater than the force of gravity trying to pull the water out, the liquid in the container stays put. It might seem like magic, but it’s science. There will be an opportunity for a zero-gravity experience on Voyager as well, and the designs currently include plans for recreational activities such as basketball games where participants can soar higher due to the weightlessness of the environment. On theme, the team also plans to plate traditional “space food,” such as freeze-dried ice cream, in the hotel’s restaurant to add additional appeal. Certain parts of the hotel will include the weightlessness of space and other sections will feel more like Earth, so guests can enjoy their drinks and meals.

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Starburst House in Joshua Tree. My first nomination for creative house design in 2024 go to the Starburst House. Situated on a 10-acre plot of land in Joshua Tree National Park, the Starburst House is a custom container home nestled into the rocky mountainside. Formed out of 21 shipping containers, the three-bedroom home features 2,000 square feet, including a spacious kitchen and a living room. The designer, Robert Whitaker oriented each container to enhance the views across the landscape, adjust the intensity of light entering the house, and provide the residents with some privacy. Boosting the eco-friendly vibe, a carport roofed in solar panels serves as the house power supply. Melissa McFadgen, principal architect at NAC Architecture, estimates the normal life span of a shipping container is 25 to 50 years. “A life span of a shipping container used for cargo at sea can be 10 to 12 years. Consider that, at sea, the shipping containers are subjected to the harshest conditions of the elements and use. But when maintained and implemented properly, the life span can be extended significantly.” Overall the life span depends?on the environment they’re in and how well they’re maintained. Explained Whitaker, “The Forth Bridge in Scotland is made out of steel and still working 134 years after completion.” ?The size of container structures is the most obvious drawback. “A shipping container is typically quite narrow, eight feet—not a great size for living in,” said Whitaker. “People sometimes get around this by putting containers next to each other, but then there is [the issue of] how to join them.” ?She noted that there can be logistical challenges. “The base shipping container module is not conceived with the need of running electrical or plumbing infrastructure within and between units,” says Whitaker, “There’s no real reason why they should get hotter than any other building if properly insulated and ventilated. If attention isn’t paid to the local climate, and the design tailored accordingly, then a container is as susceptible to overheating or cooling, just as any other building.”

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Before Dying, A Patient Creates A Fund To Cancel Others' Medical Debt. My first “feel good” story of 2024 centers on Casey McIntyre from New York City. Casey was a mother, wife and publisher at Penguin Random House. I say “was” in the past tense because Casey was diagnosed with ovarian cancer four years ago and died last month, age 38. McIntyre's job provided her with health insurance that her husband described as "really excellent." As a result, her family was not saddled with thousands of dollars of medical debt. But this isn't the case for many other Americans; it’s estimated that 4 in 10 American households owe substantial medical-related debts.?Inspired by the philanthropy of others, McIntyre orchestrated what she called a "debt jubilee" in her honor. She set up a special fund and posted it on social media.?She worked with the nonprofit group RIP Medical Debt, which buys up debt for millions of dollars at a time at a fraction of the original cost. The group says that for every dollar it receives in donations, it can relieve about $100 of medical debt. Casey’s posts went viral, gaining thousands of likes and impressions on Instagram and X. So far the fund received more than $680,000 of the nearly $700,000 goal (which equates to almost $70 million in medical debt relief for millions of Americans across the country). “While she was in the hospital, we came to an agreement that this is what we were going to do. And Casey was very excited about it. And when she got out of the hospital, which — we were very lucky that she did. She entered home hospice at the recommendation of her oncologist, and we were really lucky that she lived for six more months,”?says her husband, Andrew Gergory. Casey wanted her legacy to be clearing medical debt for others. But her husband says they never dreamed it would go this far.?Gregory says his wife would never have imagined the impact her fund would have. “I do not think Casey could have possibly imagined this response — the global press coverage it's gotten, or how many families she has helped.”?

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Have You Heard About the Hot-Girl Toilet Seat? From the inspirational to the absurd. Bailey Hikawa sees a natural relationship between the 3-D phone cases?she’s been designing since 2019 and her more recent design for toilet seats. Like her cellphone cases, the toilet seats play with material, color, and decorative elements — polka dots and glitter, unexpected curves and bumps, and everyday objects like watches and spaghetti suspended in resin. “I’m interested in that space where we are using something unconsciously multiple times a day,” Hikawa says. “What are we thinking about when we’re going to the bathroom 25,000 times?” (The two mediums also have germs in common.) Of all the rooms in the home, the bathroom is maybe the most utilitarian. Even a?designed?commode can feel a little bland: The elongated bowl of the “Toto Neorest” (the matte black and polished chrome of Kohler’s more expensive offerings) refined in a way that almost renders them invisible. But Hikawa’s work defies that impulse, making the toilet an intentional object of fascination and maybe even a little revulsion. It’s of course not for everyone. These are hot-girl toilet seats. Hikawa’s toilet seats are Instagrammable moments that merge seamlessly with TikTok maximalism and the evergreen popularity of renter-friendly upgrades. But for Hikawa, the toilet seats aren’t just a product meant to shock and delight for the sake of a few likes. There’s a reason she’s not making shower curtains or cups: She knows the toilets provoke a strong reaction. They are also a quietly democratic object in an intimate space. “Everybody does it, we’re all doing it,” she says. “I think that’s why it’s kind of hilarious too. It’s private and yet public. Holding multiple truths at once.” So you’re not just getting old cell phones suspended in a toilet seat, you’re getting much MUCH more! You’re getting the next frontier in bathroom design. An invitation to mindfulness, and something to talk about when you’re done peeing (or whatever). It also just looks really, really cool.?

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“How to Fix and Flip Houses” When it comes to flipping houses, you’ll want to learn from Don Costa. Don has fixed and flipped numerous houses around the Fresno and Central California area, written extensively about his experiences, and has a popular national podcast on the subject.?Don will be our special guest speaker at our general meeting. Don’t miss Don’s presentation. Thursday night, January 11, 2024, 6:30 to 9:30 pm. Plus, come early and enjoy our Vendors Expo. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034.?FREE Admission.?RSVP: LARealEstateInvestors.com.?

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Vendors Expo Returns!?Our world-famous, super-duper "Vendors Expo" returns on Thursday night,?January 11, 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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Basic Training Investing Boot Camp. Saturday, January 27, 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 January 20, 2024. After January 20th, the price jumps to $1 million per person. So don’t wait to register. (Gold Members and former Boot Campers can attend for FREE, but still need to register.) You can register at LARealEstateInvestors.com.?

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This Week. Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. Will they or won’t they start lowering interest rates??Som economists are already betting the Fed will begin cutting the Fed funds rate by March. For economic reports, the Trade Deficit will come out on Tuesday. The U.S. Bureau of Labor Statistics reports its Consumer Price Index (“CPI”) will be released on Thursday. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.

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Weekly Changes:

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

Dow Jones Average:??????????Fell????200 points

NASDAQ:?????????????????????????????Fell????400 points

Calendar:

Tuesday (1/9):??????????????????????Trade Deficit

Thursday (1/11):??????????????????Consumer Price Index

Friday (1/12):????????????????????????Producer Price Index

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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]

310-409-8310

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