Economic Update

(Monday, February 7, 2022)

For perspective on the Fed’s influence over the housing market since it launched its emergency bond-buying program two years ago, consider this point: Some 762,000 new homes were sold at an average price of $453,700 in 2021, meaning that the Fed (looking just at its $40 billion-a-month in mortgage-backed securities purchases) bought the equivalent of the entire new-home market last year, plus an extra 36%. How the central bank handles housing (set ablaze by the pandemic’s push of people to suburbs and exurbs chronically short on inventory as Fed intervention torpedoed mortgage rates) will determine whether the Fed can realistically and sufficiently cool inflation without throwing our economy into a recession. The central bank is about to raise interest rates, which indirectly affect mortgage rates, and could begin selling its enormous holdings of mortgage-backed securities later this year, which will affect mortgage rates. Both of those will be headwinds for the U.S. housing market. On the other side of the ledger is a growing economy and tight labor market. Plus, record-low inventory of homes for sale and lots of investor money chasing scarce properties could keep it a seller's and landlord's market for some time. But the stakes are high for the Fed. As housing goes, so goes our economy. The sector makes up nearly a fifth of GDP, and more people own their homes than own stocks, making the so-called “wealth effect” deeply connected to real estate. So with the wealth effect on our minds, let’s mask up, get boosted, and get under the hood…

U.S. Gains 467,000 Jobs in January. Good news! The U.S. added a robust 467,000 jobs in January and hiring was much stronger at the end of 2021 than originally reported, pointing to the resilience of a rapidly recovering economy despite successive waves of the coronavirus. The unemployment rate rose to 4% from 3.9%, the Labor Department said Friday, but that’s nothing to worry about. A record 7.8 million people said they missed time from work last month due to omicron, the labor survey showed. Instead, companies apparently ramped up hiring. Employ gains in December and November were also much bigger than initially reported, newly revised data show. By every measure, the labor market is bursting at the seams. Businesses have a near-record 10.9 million job openings, for one thing. Many are so desperate to hire they are offering better pay, bonuses and other benefits. Hourly wages shot up 23 cents, or 0.7%, to $31.63 in January. Over the past year wages have jumped 5.7% — the biggest increase in decades. One of the biggest problems businesses face is finding enough labor to keep up with strong demand for their goods and services. Our economy is still missing as many as 4 million workers (who likely would be employed now had the pandemic never happened). Some even think the Fed may now consider a 50-basis point rate hike in March, an idea considered farfetched before these January employment figures.  Plus the strong labor market has given more leverage to workers to ask for higher pay or take better-paying jobs. It’s also padding their income and allowing them to spend more — a good thing for our economy. The downside? Higher pay could feed already high U.S. inflation unless workers prove to be more productive in their jobs. The reality is that inflation is rising even faster than wages. The number of people who either have a job or were looking for one was an estimated 163.8 million in January, compared to 162.3 million at the end of 2021. The strong jobs report is good news for our economy and American workers, but the Federal Reserve is going to be forced to raise rates more quickly than previously thought and to a higher level.

Number of People Leaving California Increased During Pandemic. Fewer people have moved to California from other states since the start of the COVID-19 pandemic, while the number of Californians leaving to other states has gone up, a new study found. Every single county has seen fewer people moving in from out of state since the end of March 2020. But declines were especially steep in San Francisco, Santa Clara and San Mateo counties. The study by the nonpartisan California Policy Lab found that the number of people moving to California dropped 38% at the end of 2021, compared to the end of March 2020. Meanwhile, the number of residents leaving California to other states increased 12%. That’s roughly in-line with pre-pandemic trends, according to the researchers. The exit rate of movers has increased in 52 of California’s 58 counties, the study found. “Taken together, these two trends mean that population loss due to domestic migration has more than doubled since the beginning of the pandemic,” California Policy Lab found. That’s mostly because fewer people moved to our state from other states. But researchers say there is no evidence of a “pronounced exodus” from California. Net entrances from domestic migration dropped significantly since the start of the pandemic. In Los Angeles County, for example, 58,803 people moved away in the fourth quarter in 2021, while 24,882 moved into the county. Californians from the Bay Area account for a larger share of those leaving the state than before the pandemic, the study found.

LA County Extends Eviction Protections. Landlords are you sitting down? I have more bad news. In case you haven’t heard, the Bottom of FormLos Angeles County’s Board of Supervisors voted last week to extend countywide eviction protections through the end of 2022. Under the new rules, landlords will not be able to evict low-income tenants hurt by COVID-19 over non-payment of rent until at least 2023. However, the approved plan will begin to gradually phase out other renter protections later this year. Housing advocates supported the move, arguing that without an extension, struggling renters would have been vulnerable to eviction. In response, landlords strongly protested the extensions, urging a swift return to pre-pandemic rules. They said property owners have shouldered the cost of tenants deferring rent for close to two years now — and will potentially do so for up to almost another year under the new rules. “The supposed ‘interim’ emergency measures imposed by the county have gone on way too long and must now be replaced with long-term, workable solutions based on our situation that is in existence today,” said Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles. The extension also continues rules against evictions over tenant nuisances or unauthorized occupants and pets. But starting in June, landlords will again be able to pursue certain “no-fault” evictions — such as owner move-in evictions — under limited circumstances. Perhaps the most significant change will be the return of L.A. County’s ban on evictions over non-payment of rent. But starting on June 1 in “phase two,” that protection will only apply to renters earning up to 80% of the area’s median income. In L.A., that’s $94,560 per year for a family of four. To claim this protection after June 1, tenants will need to self-certify that they meet the income requirements. Also starting in June, landlords can once again evict tenants for denying entry into an apartment.

Dallas Office Properties Tied to Ukrainian Money Laundering Scheme. Doesn’t it seem like Ukraine is in the news a lot lately? Now we have this.  An office tower in Dallas is at the heart of a federal lawsuit claiming the building was among several commercial properties used as a money laundering front for funds embezzled through a bank in Ukraine. According to the Dallas Morning News, the civil forfeiture complaint filed Jan. 20 in the Southern District of Florida seeks to seize more than $6 million in proceeds from the sale of commercial real estate in Dallas, including Eldorado Towers, a building located at 8787 North Stemmons Freeway. The complaint is linked to three other lawsuits against Ihor Kolomoisky and Gennadiy Boholiubov, former owners of PrivatBank in Ukraine. According to the Department of Justice, Kolomoisky and Boholiubov embezzled and defrauded the bank of billions of dollars before partnering with associates in Miami to launder the funds through acquisition of properties in Dallas, Cleveland and Louisville, Kentucky. The lawsuit also mentions the former CompuCom headquarters on Forest Lane, which the DOJ claims was purchased by the Miami associates using embezzled funds. Profits from that property were allegedly used to pay for improvements to Eldorado Towers, which was then sold via a seller-financing agreement. More than $6M of principal and interest is still owed on that agreement, per the DOJ. The U.S. is attempting to seize the Ukrainian’s deed of trust related to that agreement. According to the DOJ, the case is being led by the FBI’s Cleveland office and is still under investigation. The DOJ filed its first two complaints in August 2020 following a raid on the Cleveland offices of Optima Management Group; the DOJ noted in its statement Kolomoisky and Boholiubov created a web of entities, often using the name “Optima,” to "further launder the misappropriated funds." A third suit followed in December 2021. All in all, who needs to worry about Putin when you have Kolomoisky and Boholiubov?

Arnold Schwarzenegger Donates Tiny Homes for Homeless Veterans. A special shout-out to the Arnold. Our former Governor helped a nonprofit buy 25 tiny homes in Los Angeles. "I’m really ecstatic. To me, this is the greatest Christmas gift!" That's how Arnold Schwarzenegger described his emotions while standing inside a tiny home on the campus of the V.A. in Brentwood. California's 38th Governor donated $250,000 to help the nonprofit “Village for Vets” purchase 25 homes. Arnold's a long-time advocate for the vets in West Los Angeles. Patrick Schwarzenegger joined his father for the visit. He passed out his new nutrition bar MOSH at a BBQ event to celebrate the vets and their tiny homes.  Arnold is grateful for the chance to give back. "It makes me feel good I can give something back to this country that has given everything to me." Thank you Arnold! 

Auschwitz Survivor Mel Mermelstein Dies At 95. Mel Mermelstein was 17 when he lost his mother and two sisters in Nazi gas chambers. His brother was fatally shot on a death march, and his father would die as a slave laborer in Auschwitz. When the allied troops finally liberated him, Mermelstein weighed a meager 68 pounds. Last week, Mermelstein died from Covid complications in his Long Beach home. He was 95. Still, Mermelstein was able to thrive because of the promise he made to his father in Auschwitz: to carry on the memory of and educate the world about the holocaust. Edie Mermelstein says her father emigrated to the U.S. after the war, but he began going back to Auschwitz in 1967 while it was a part of the Eastern Bloc. "I think that going back to Auschwitz was really communing with, honoring, and commemorating his family, because that's really where their remains are," Edie Mermelstein said. Mel established relationships with the people overseeing the concentration camp museum and would bring back artifacts. Mermelstein incorporated these artifacts into art pieces that he used to help process the trauma he experienced in the camps. In 1978, Mermelstein opened the Auschwitz Study Foundation to educate students on the horrors of Nazi occupancy. Much of Mermelstein’s artwork is at the Chabad Jewish Center in Newport Beach. Eventually, the Newport Beach Center will house Memerlstein's entire collection and use it as a teaching tool. Edie Mermelstein says her father knew at some point he would no longer be here, but wanted his teachings to live on.  "My dad was deliberate and forthright. He spoke his truth and was unwavering, and I think that's how he always approached it. There was nothing to fear because he just spoke the truth." I met Mel years ago at a Long Beach chamber of commerce event. As a holocaust survivor, he was special, and a stark reminder of what Whoopi Goldberg had difficulty remembering last week.

Super Bowls by the Numbers. There’s a reason the Super Bowl is referred to as “the Big Game”: No other annual sporting event in the United States regularly has higher attendance, is watched by more people, or makes more money for everyone involved. Originally created in 1966 when the National Football League merged with its rival, the American Football League (AFL), the first AFL-NFL World Championship Game was played at Los Angeles Memorial Coliseum in January 1967 between the Green Bay Packers and Kansas City Chiefs for a crowd of 61,946. The event’s name was officially changed to the “Super Bowl” only in the match’s third year, when the New York Jets triumphed over the Baltimore Colts in what the NFL called “one of the greatest upsets in American football history.” The Super Bowl has since lived up to that moniker over and over again, not only growing in viewership throughout the subsequent five and a half decades but generating revenues for host cities, advertisers (and advertising) associated with the broadcast, and for the NFL itself. Since 1967, Los Angeles has hosted the Super Bowl eight times, including the upcoming game this Sunday (2/13). Only five Super Bowls have topped 100,000 fans in attendance, and four of those were played at the Rose Bowl. According to New York-based marketing research firm The Nielsen Co., viewership for the game has steadily increased as well, jumping from a total of around 50 million in 1967 to approximately 92 million in 2021. The cost of a 30-second television spot throughout Super Bowl history. Prices started at $37,000 in 1967 and jumped to $5.6 million in 2021.  Meanwhile, the paydays for players have increased tenfold: When the Packers won that first contest, 35 to 10, they received $15,000 apiece, and the members of the losing Chiefs received $7,500. Per NFL, the winners this year will receive $150,000 each, and the losers will earn $75,000 each. The Big Game always seems to have a major impact on spending. For example, the NFL projects the average daytime spending per person and per day for the Super Bowl on Feb. 13 should land between $105 and $190 for a total economic impact of somewhere between $23 million to $52 million just in the city of Inglewood and a total of $234 million to $477 million for the county of Los Angeles.