Monday Morning Quarterback

(Monday, June 24, 2024)

As Los Angeles plans to update its housing guidelines?(that dictate where new homes can be built), affordability advocates have noticed something they find very troubling: The plan leaves out nearly three-quarters of the residential portion of the city!?That is because the city’s plan leaves out land zoned for single-family homes (R-1), which make up 72% of LA’s residential area. But a coalition of about 40 organizations that work on housing issues are pushing to change things. They want the city to open up single-family areas for multifamily development by changing the zoning during the state-mandated housing element?update process.?The city expects to hold a public hearing about the housing plan sometime this summer. The wide spread between single-family and multifamily zoning has created “clear disparities”?in housing access throughout the City, putting a velvet rope in front of areas with the highest concentrations of jobs, public transit access and top schools that keeps more affordable forms of housing out.?However, after public feedback gathered in mid-2023 and “direction” from the Los Angeles City Council, the planning department has done an about-face. Single-family zones are not eligible for affordable housing incentives the city is planning (with some exceptions for projects proposed by and on land owned by religious organizations). They are also left out of a transit-focused incentive package for affordable housing, the planning department said in a recent note.?In a letter to the planning department, the Inner City Law Center and 40 other signatories expressed unease at the city’s plans for its housing future.?They argue that by keeping single-family zones walled off to other types of housing and incentivizing new multifamily projects in the fraction of the city where they are already allowed, the city is promoting “displacement of rent-controlled tenants while reinforcing existing segregationist patterns.” In other real estate investor news, let’s get down into the weeds….

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Foreclosure Activity Increases in May. ATTOM data services released its May 2024 “U.S. Foreclosure Market Report,” which shows there were a total of 32,621 U.S. properties with foreclosure filings?(default notices, scheduled auctions or bank repossessions) up 3 percent from a month ago. Nationwide one in every 4,320 housing units had a foreclosure filing in May 2024. States with the highest foreclosure rates were New Jersey (one in every 1,939 housing units with a foreclosure filing); Illinois (one in every 2,362 housing units); Delaware (one in every 2,595 housing units); Connecticut (one in every 2,600 housing units); and Florida (one in every 2,638 housing units). Among the 224 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in May 2024 were Longview, TX (one in every 1,162 housing units with a foreclosure filing); Trenton, NJ (one in every 1,471 housing units); Atlantic City, NJ (one in every 1,569 housing units); Lakeland, FL (one in every 1,584 housing units); and Bakersfield, CA (one in every 1,685 housing units). Those metropolitan areas with a population greater than 1 million with the worst foreclosure rates in May 20244 were: Chicago, IL (one in every 2,015 housing units); Philadelphia, PA (one in every 2,143 housing units); Riverside, CA (one in every 2,216 housing units); Jacksonville, FL (one in every 2,267 housing units); and Las Vegas, NV (one in every 2,361 housing units). Lenders started the foreclosure process on 22,385 U.S. properties in May 2024, up 3 percent from last month but down 4 percent from a year ago. States that had the greatest number of foreclosure starts in May 2024 included: Florida (2,750 foreclosure starts); Texas (2,560 foreclosure starts); California (2,370 foreclosure starts); Illinois (1,427 foreclosure starts); and New Jersey (1,219 foreclosure starts).

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Bulletin! Bulletin! Stop the Presses! Judge Rules Against Barrington Plaza Landlord. In a highly anticipated decision that could have broad implications for renters and landlords across California, a Superior Court judge has ruled against a landlord seeking to carry out one of the largest mass evictions?in Los Angeles history. The judge’s determination means more than 100 tenants still living at Barrington Plaza (a 712-unit West L.A. high-rise apartment complex) will get to stay. Some long-term tenants pay far below market rates due to the city’s rent stabilization ordinance, and feared they would not be able to find affordable housing anywhere in the region if forced to leave. “This is, no doubt, one of the most important tenants' rights legal victories in state history,” said Larry Gross, executive director of the Coalition for Economic Survival?in an email on the ruling. Santa Monica-based corporate landlord Douglas Emmett originally filed evictions against 577 households at Barrington Plaza back in May of 2023. The company said the property needed to be completely vacated in order to install fire sprinklers. (Two large fires have broken out in the apartment buildings in recent years, with a 2020 fire?resulting in the death of one person.) The company filed the evictions under California’s Ellis Act, which allows landlords to clear their buildings when they plan to “go out of business.” Thursday’s tentative ruling from Judge H. Jay Ford, III (likely to become the final ruling after another court hearing) hinged on the question of what exactly it means for a landlord to “go out of business.” Both sides agreed the Ellis Act requires owners to exit the rental business in order to vacate buildings. But they disagreed on how long owners must keep those properties off the market. The tenants’ attorney, Frances Campbell, argued the owners of Barrington Plaza had no plans to get out of the landlording business. Instead, she said, they planned to refurbish and re-rent the apartments at higher rates. Douglas Emmett’s attorneys said removing tenants for rehab work that could take years was in effect going out of business, even if the move was temporary. Ultimately, Judge Ford said the landlord in this case had no intention of permanently going out of business when it filed the evictions. Rather, he said, the plan was to continue renting the apartments after work was complete.?

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Cost Of Home Repairs Increases From 2023. Economist Rick Sharga (CJ Patrick Company) reports that the cost of home repairs and remodeling in the first quarter of 2024 continued to increase, rising 4% from the first quarter of 2023 according to the?Verisk Remodel Index. Costs once again set new highs for the past decade, rising over 61% from the first quarter of 2014. The Verisk Remodel Index tracks costs on 31 different categories of home repair, comprising over 10,000 line items ranging from appliances to windows. Data are compiled monthly in over 430 local market areas across the country. “Repair costs rose in each of the 31 categories of home repair that are included in our index, but the rate of increase continues to be slow down from the more rapid increases we had during and immediately after the COVID-19 pandemic,” said Greg Pyne, VP, Pricing for Verisk Property Estimating Solutions. Quarterly costs rose in all 31 categories included in the report. The cost of framing was still slightly lower on an annual basis, and the only category not higher than in the first quarter of 2023. Framing was the only one of the six largest categories of expenditure to decline on an annual basis. The other four (cabinets, siding, paint, wood look flooring, and plumbing) all rose between 2.5% and 5.5% over the past 12 months. The cost of exterior doors rose the most compared to the last quarter, increasing by over 3.7%. Only two other categories had a quarterly increase of at least 1% (tile flooring at 1.55%, and interior home painting at 1.03%). The index has risen by 65.88% since its inception in January 2013. The Pacific Region (63.83%) and New England Region (62.81%) are the only two regions that surpassed the national average of a 60.72% cost increase over that 10-year span.

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Mortgage Rates Drop To Lowest Level In Two Months. Mortgage rates fell for the second week in a row, on the back of data indicating that inflation in the U.S. economy was softening. In fact the 30-year mortgage fell to the lowest rate since March. The decrease in rates caused the Market Composite Index (a measure of mortgage application volume) to inch up in the past week, according to the Mortgage Bankers Association (MBA) on Wednesday. The Market Index rose 0.9% to 210.4 for the week ending June 14 from a week before. A year ago, the index stood at 209.8. Meanwhile, the Purchase Index (which measures mortgage applications for the purchase of a home) rose 1.6% from a week prior. The Refinance Index fell 0.4%. The average contract rate for the 30-year mortgage for homes sold for $766,550 or less was 6.94% for the week ending June 14. That’s down from 7.02% the week before.?The rate for jumbo loans (or the 30-year mortgage for homes sold for over $766,550), was 7.12%, down from 7.18% the previous week. The average rate for a 30-year mortgage backed by the Federal Housing Administration was 6.79%, down from 6.87% a week prior. The 15-year was down to 6.47%, from 6.6% in the previous week.?The rate for adjustable-rate mortgages was down to 6.27%, from 6.45%. As our economy shows signs of slowing down, mortgage rates will dip. The market is expecting the Federal Reserve to cut interest rates, as economic indicators such as the May Consumer Price Index showed signs of a slowdown, which will in turn pressure mortgage rates down further. But lower rates may not be enough to make it more affordable to buy a home. Inventory is another drag on the housing market. Though lower mortgage rates translate to lower monthly mortgage payments, the dip could also trigger more aspiring homeowners to enter the market. With a housing shortage, it could drive up competition for homes, and therefore home prices.

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Zumper National Rent Report. According to Zumper’s May National Rent Index, both one and two-bedrooms increased 1.2% this month, settling at medians of $1,504 and $1,865, respectively. “May marks the first time we’ve seen national monthly growth rates of over 1% since October 2022,” explains Zumper CEO Anthemos Georgiades. “This notable rise in rent coupled with the current persisting inflation suggests that there will be even more pressure put on the CPI in the coming months and rate cuts by the Fed may be pushed back further than previously anticipated.” On an annual basis, the national one-bedroom rate was flat while two-bedrooms inched up 0.5%. Although the annual rates have cooled significantly from the price hikes experienced in the last few years, as the national one-bedroom rent is exactly the same as it was a year ago and the two-bedroom rate is only $9 pricier, they have not offset those large increases. The national one-bedroom rent is still $287 more expensive than it was 4 years ago and the national two-bedroom rent is nearly $400 pricier.?The 2 cities with the largest annual rent price growth rates in the country were Syracuse, NY and Columbus, OH. Syracuse saw one-bedroom rent jump 28.6%, while Columbus rent climbed 22.5%. Notably, Syracuse rent also had the biggest monthly growth rate nationwide as well. A few factors at play are putting upward pressure on Syracuse rent. This city has recently seen historic population growth, it houses a large national university, and many homes are owned, rather than for rentals, so the demand and competition in this city have swelled considerably. Meanwhile, Columbus has been rapidly developing, drawing many people in for a more affordable cost of living and employment opportunities. Major tech companies like Intel and Google?have announced plans on opening new manufacturing plants and data centers, respectively, in the Columbus area. Additionally, Columbus actually saw the largest population growth?among major U.S. metropolitan areas at the end of 2023, a sharp contrast to the population losses seen in San Francisco and Los Angeles. With the rising demand in both Syracuse and Columbus, rent rates will likely continue to increase throughout the year in both cities until new apartment supply is built.

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Inside Warren Buffett’s Properties. Warren Buffett’s does not own much real estate?despite the fact that the Berkshire Hathaway cofounder is one of the richest people?in the world (with a net worth of $133.8 billon). Let’s take a glimpse into Buffett’s beloved properties, most of which he’s owned for several decades. He was born in Omaha. At 13, Buffett took on a job as a paperboy delivering copies of?The Washington Post?in his neighborhood. By age 15, Buffett had made $2,000 delivering papers and selling magazine subscriptions to customers along his route. That same year, 1944, the boy who would later be known as the Oracle of Omaha invested $1,200 of his earnings into a 40-acre farm?in Nebraska and struck up a profit-sharing deal with a local farmer. Buffett reportedly disliked manual labor but loved the thrill of investment.?In 1958, at the age of 28, Buffett purchased what has remained, to this day, his primary residence: a $31,500 house in his hometown of Omaha. He and his then wife, Susan, raised their three children there. Built in 1921, the five-bedroom, two-and-a-half bathroom stucco house measures about 6,570 square feet and sits on a corner lot. Realtor.com estimates?that the home would be valued around $1.44 million in today’s dollars, which is over 44 times more than what Buffett paid for it, but still just a tiny fraction of his overall net worth. In a 2010 letter to his Berkshire Hathaway shareholders, the billionaire called this home the third-best investment he’s ever made; his top two were wedding rings. “I’m happy there,” he told BBC?in 2009. “I’d move if I thought I’d be happier someplace else. I couldn’t imagine having a better house.” Buffett made one of his only other real estate purchases in 1971 when he and Susan paid $150,000 for a vacation home in Laguna Beach, California. The contemporary -style home?measured 3,588 square feet, with high, sculpted ceilings and recessed lighting that gave it a museum-like feel. In addition to his two well-known homes, Buffett has also invested in a great deal of farmland, including research farms in South Africa and Arizona. In 1986, he bought a 400-acre farm?located 50 miles north of Omaha from the FDIC. “It cost me $280,000.”?

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?Happy Birthday Donald Duck. The Walt Disney Company?is going quackers over Donald Duck. The Burbank entertainment and media giant earlier this month kicked off its 90 years of Donald Duck celebration. The company released a brand new short on June 9?highlighting the storytelling behind the beloved character to commemorate the anniversary of Donald’s first appearance in the 1934 Silly Symphony short cartoon, “The Wise Little Hen.” The cartoon short, “D.I.Y. Donald” from Walt Disney Animation Studios,?is the studios’ first?Donald Duck-starring short since 1961. Debuting on Disney+ as well as?at the Walt Disney Animation Studios’ YouTube channel, Disney Channel and Freeform, this short finds Donald trying his hand at some home repairs which begin with the replacement of a light bulb and quickly turn into a series of comic catastrophes.?The short also pays tribute to Disney legend Clarence “Ducky” Nash, who originated the voice of Donald for his first 50 years, and who delivers the character’s vocal gestures and assorted “wise quacks” by way of archival voice recordings. Believe it or not, Donald Duck?has been featured in more than 150 short films – more than any other Disney character. This campaign looks back at the journey of this iconic character and the role he has played in Disney’s storytelling legacy. “His popularity and accomplishments both on and off screen have earned him numerous accolades, including a star on the Hollywood Walk of Fame and having his webbed footprints immortalized in cement outside the Chinese Theatre in?Hollywood,” a Disney press release exclaims. Happy B-Day Donald.?

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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Vendors Expo Returns!?Our world-famous, super-duper "Vendors Expo"?returns on Thursday night,?July11, 2024. The Vendor Expo opens starting at 6:30 pm. We'll have 30+ 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 .

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 25 years old!?So if you’re 25, what are you waiting for??And if you’re over 25, what are you waiting for!?(If you’re under 25, 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, July 11, 2024, 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 .

Foreclosure Workshop. How to find and buy foreclosure properties, including buying pre-foreclosure properties from distressed property owners, buying at the trustee’s sale, and buying REOs. Plus attendees will have the opportunity to participate and bid at a live trustee’s sale. Saturday, June 29, 2024, 9:00 am to 5:00 pm. Iman Cultural Center, 3376 Motor Avenue, Los Angeles 90034. The cost of the Forum is $249.00 per person. So don’t wait to register!?(Gold Members can attend for FREE.) www.LARealEstateInvestors.com .

?This Week. Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, Consumer Confidence will be released on Tuesday. New Home Sales will come out on Wednesday from the Census Bureau. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday from the Bureau of Economic Analysis.

Weekly Changes:

10-Year Treasuries:????????????Rose??005 bps

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

NASDAQ:???????????????????????????Rose??100 points

Calendar:

Tuesday (6/25):???????????????????Consumer Confidence

Wednesday (6/26):??????????????New Home Sales

Friday (6/28):???????????????????????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]

310-409-8310

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