Monday Morning Quarterback

(Monday, January 16, 2023)

The American middle class, which shrank for four decades, is holding steady for now, according to the Pew Research Center. The latest data shows that the share of the households in the middle class is about 50% — right around where it’s been since 2011. At its peak in 1971, the middle class represented 61% of U.S. households. (Pew defines a middle-class household as one earning between two-thirds and twice the median American household income, which in 2021 was $70,784, according to the U.S. Census Bureau.) That means you’re middle class by Pew’s definition if your household earns between $47,189 and $141,568. That’s a broad range, and even within Pew’s guidelines, there’s room for some nuance. As CNBC Kameron McNair points out, “other factors like family size and location can change what middle class looks like for you.” Her list of what middle class looks like in America’s 20 most populous cities shows that class parameters can vary greatly based on location. For example, Bay Area residents  are considered middle class if they earn between $77,000 and $232,000, while households in greater Tampa, Florida qualify with income from $42,000 to $126,000. Notably, Pew’s conclusions about what proportion of the population is middle class roughly align with the public’s. About half (52%) of Americans self-identify as middle class or upper middle class, according to a 2022 survey from Gallup, a figure that has hovered in the low 50s since 2012. In other real estate economic news, let’s get under the hood…

Inflation Slows Again in December: Good news! The U.S. cost of living fell 0.1% in December and posted the first decline since the onset of the pandemic in 2020, pointing to a further slowdown of inflation after it hit a 40-year peak last summer. The annualized rate of inflation fell for the sixth month in a row to 6.5% from 7.1%. That’s the lowest level in more than a year and down from a 40-year peak of 9.1% last summer. The so-called “core rate of inflation,” which omits food and energy, dropped 0.3%. The core rate over the past 12 months dropped to 5.7% from 6% marking the lowest level in a year. The Fed views the core rate as a more accurate predictor of future inflation trends. Gasoline prices fell again at year end to hold down the headline CPI. The cost of gas has tumbled since last summer and given households some major price relief. What’s more, the cost of groceries rose a mild 0.2% in December (the smallest increase in almost two years) and showed signs of ebbing. Grocery prices are up 11.8% in the past year, however. A major worry of the Fed is the cost of housing, which has risen at the fastest pace since 1982. It’s the single biggest category of the CPI. Rents jumped 0.8% in December. As a result, the yearly increase in the cost of shelter rose to a new 40-year high of 7.5% from 7.1%. More recent surveys of rents and home prices, however, suggest they will slow markedly this year. Higher mortgage rates have choked off home sales and rent increases are also slowing. But it takes up to six months for these changes to show up in the CPI because of technical factors in how these prices are calculated. So yes, inflation is coming down. Just not fast enough to entirely appease the Fed. The central bank wants to see price pressures (especially wage growth) ease a lot further before it backs off its get-tough strategy.

Oscar Niemeyer’s Modernist Masterpiece Becomes Stage For Insurrection. As further proof that news stories contain some element of real estate we need to look no further than the insurrection in Brazil last week. It felt like a grotesque re-imagining of Groundhog Day. Forty-eight hours after the anniversary of the Jan. 6 insurrection in the United States (in which right-wingers weaned on conspiracy theories about a presidential election stormed the U.S. Capitol), supporters of the outgoing, right-wing Brazilian president Jair Bolsonaro did much the same. Over the course of Jan. 8, rioters dressed in the colors of the Brazilian flag overran the Modernist buildings that make up the government complex in the capital of Brasília. The buildings are an acclaimed World Heritage site designed by Brazilian architect Oscar Niemeyer. Rioters proceeded to tear the place up. On Thursday, Brazil’s artistic Heritage Institute released a 50-page photographic report on the extensive damages to their buildings. These included shattered windows at all of the city’s architectural icons, crushed furniture, torn paintings and carpets soaked in water and urine. In so many ways, an attack on these architectonic treasures reads like an attack on democratic ideals. The city is utopic in its design and embodies unique Latin American architectural concepts. The construction of Brasília was a monumental undertaking. As a space and object, Brasília is a landmark of modernism and Brazilian architecture. Whatever the nuances of its creation, Brasília is nonetheless the preeminent symbol of the Brazilian state and, ultimately, the will of its people (people who, incidentally, voted Bolsonaro out of office in October). Six decades out, Niemeyer’s structures retain their creative optimism.    

FTX Has More Than $250M In Real Estate, But The Bahamas Wants It. Again, as I said above, proof that news stories contain some element of real estate we need to look no further than the travesty of FTX. In the immediate aftermath of FTX founder Sam Bankman-Fried’s arrest in the Bahamas, an international dispute is building over his company's real estate investments. Managers of the bankrupt cryptocurrency exchange are locked in a tug of war with the Bahamian government over a large real estate portfolio that FTX is looking to liquidate, CNBC reports. At issue is more than $256M in property that FTX acquired and maintained across the island of New Providence. The portfolio includes 35 properties, including more than a dozen in and around Bankman-Fried's home (where he and other FTX leaders reportedly holed up amid the exchange’s collapse last month) and the site of FTX's planned headquarters, which broke ground in April and has since had construction halted. The fight occurs as Bankman-Fried was extradited from the Bahamas to the United States, following his arrest last week. The arrest was made after the U.S. issued criminal charges against Bankman-Fried. The Bahamian government has sought to prevent the sale of FTX's properties, and the new details about FTX's real estate portfolio stem from documents filed by Bahamian regulators in Delaware bankruptcy court. The liquidators argued in their latest filing that a holding company controlling FTX's real property was unlawfully transferred to the U.S. as part of Chapter 11 bankruptcy proceedings. But FTX's new leadership has pushed back on those claims. Lawyers for Ray called the Bahamian liquidators "reckless" in a counter-filing, claiming that they had pushed Bankman-Fried to try and get his password back for corporate accounts. The Bahamian properties were under the control of Bankman-Fried and his former co-CEO Ryan Salame. Salame directed the acquisition of dozens of properties, including luxury villas bought for up to $30M and development sites bought for $25M. Salame has not been charged with a crime. Yet.

Steep Drop In Mortgage Lending Continues Across America. ATTOM Data Services released its third-quarter 2022 “Residential Property Mortgage Origination Report,” which shows that 1.97 million mortgages secured by residential property (1 to 4 units) were originated in the third quarter of 2022 in the United States. That figure was down 47 percent from the third quarter of 2021 (the biggest annual drop in 21 years). This is what happens when you raise mortgage rates. The continued decline in residential lending resulted from double-digit downturns in both refinance and purchase loans. Overall, lenders issued $636.5 billion worth of mortgages in the third quarter of 2022. That was down quarterly 46 percent annually. As with the number of loans, the annual decrease in the dollar volume of mortgages stood out as the largest since at least 2001 and was the latest sign that the 11-year U.S. housing market boom is losing steam. The continued dip came as just 661,000 residential loans were rolled over into new mortgages and borrowers took out only 943,000 loans to buy homes during the third quarter of 2022. Banks and other lenders issued 1,968,930 residential mortgages in the third quarter of 2022. That was down 46.9 percent from 3,708,000 in the third quarter of 2021. The annual decline marked the largest since at least 2001. The $636.5 billion dollar volume of loans in the third quarter was down 22.4 percent from $819.9 billion in the prior quarter and was 46.4 percent less than the $1.19 trillion lent in the third quarter of 2021. Metro areas with a population of least 1 million that had the biggest decreases in total loans from the second quarter to the third quarter of 2022 were St. Louis, MO (down 35.8 percent); Miami, FL (down 30.4 percent); Washington, DC (down 30.1 percent) and San Jose, CA (down 28.2 percent).

L.A. County Will Buy Back Bruce’s Beach for $20 Million. Bruce’s Beach, the oceanfront property in Manhattan Beach that was stolen from its black owners in 1924 and returned to its rightful descendants last July, is now to be sold back to Los Angeles County for a reported $20 million, CNN reports. Descendants of the original owners (Willa and Charles Bruce) informed the county of their decision to sell the famous beach, though it’s unclear when the sale will be finalized. Willa and Charles Bruce bought two lots on the Strand between 26^th and 27^th Streets from L.A. County for $1225 back in 1912, building a lodge, a small restaurant, and a dance hall that became a thriving vacation spot for Black families. The Bruces faced threats and intimidation from their white neighbors, including members of the Ku Klux Klan. In 1924 the City of Manhattan Beach used eminent domain to condemn and seize the resort, along with more than two dozen Black-owned homes that had sprung up around it, paying the Bruces just a fraction of the resort’s value. Legislation allowing L.A. County to return the property to the original owners’ descendants was first drafted in April, 2021. Today, Bruce’s Beach is a park containing a lawn and lifeguard training facility. Supervisor Janice Hahn spearheaded the effort to have the beach property returned to the family, and oversaw the ceremonial event in which the ownership was given back. Hanh says she “wanted to right this wrong” and hopes that “governments across the country will follow.”

Homeless Veterans in Los Angeles Sue VA Demanding Housing. The U.S. Department of Veterans Affairs was hit with a civil rights lawsuit last week by homeless veterans in Los Angeles and their advocates. The plaintiffs are accusing the agency of misusing the huge VA campus in West LA by breaking a promise to build 1,200 affordable apartments there. Instead, the complaint alleges, the VA routinely pushes the region’s neediest veterans into temporary shelters, psychiatric facilities, and jails — depriving them of housing and health care benefits. The 14 veterans behind the suit (who are all unhoused and all suffer from serious mental or physical disabilities), are asking a federal court to force the VA to improve housing access for disabled veterans on the VA’s 388-acre West Los Angeles medical campus. They also want to ban the VA from entering lease agreements on that campus (which was donated to the government specifically to house veterans) with outside renters that have nothing to do with veteran care. The National Veterans Federation, an advocacy organization, is also a plaintiff. Los Angeles County has long had the country’s highest number of homeless veterans — nearly 4,000 by last count. It also has one of the largest VA medical centers in the country. Situated on a gated campus nearly half the size of New York’s Central Park, the West Los Angeles VA (on Wilshire Blvd. just west of the 405 freeway) is surrounded by some of LA’s wealthiest neighborhoods. It has a hospital, in-patient clinics for mental health and substance use disorders, one traditional group homeless shelter, and a “tiny home” village for unhoused veterans, among other facilities. But it has only one apartment building with 54 affordable units for low-income veterans. The complaint calls for the VA to make permanent, supportive housing available for at least 3,500 needy veterans on or near the West LA campus within six months.

Vin Scully’s Hidden Hills Mansion Finally Sells For $14 Million. Vince Scully’s longtime home, a French chateau-style estate in Hidden Hills dubbed “Home Plate,” just sold for $14 million. The prized compound hit the market for $15million in October two months after Scully dies at 94. It was a speedy sale, finding a buyer less than a month after listing. Scully, a broadcasting legend who served as the voice of the Dodgers for more than six decades, paid $12.4 million for the impressive estate in 2009. It sits about 30 miles from Dodger Stadium. Conveniently, Vin’s daughter, Compass agent Cat Scully, handled the sale. She called it bittersweet, adding that “a huge chapter of our family story has come to an end.” Even in a community as affluent as Hidden Hills, the compound stands out in both size and scale, covering nearly two acres and centering on a two-story home with seven bedrooms and nine bathrooms across 11,000 square feet. A motor court with a fountain approaches the residence, leading into ornate spaces filled with stone-cast fireplaces, crystal chandeliers, coffered ceilings and oak floors. Highlights include a marble bar, movie theater, double-island kitchen, wood-paneled library, wine cellar and game room. The amenities continue outside, where lawns and patios lead to a putting green, swimming pool and tennis court. Scully spent 67 seasons as the “voice” of the Dodgers before retiring in 2016 after a decorated career that saw him elected into the Radio Hall of Fame and the California Sports Hall of Fame. For his distinct narrative style, he is considered one of the best baseball broadcasters of all time.

Fugitive Cow Located at Long Island Golf Course. How can a cow disappear? Was she lost or purposely hiding? Only Vienna knows for sure. Vienna, a 750-pound sweetie, escaped from a farm in Manorville, New York, back in August and simply disappeared. “We have no idea where she is,” the son of the cow’s owner told Patch at the time. “I hope we find her.” This Long Island cow managed to evade capture for four months, which is not easy for a 1,500 pound animal in densely populated Long Island.  But alas, Vienna has finally been corralled. She was, it turns out, hanging out at a local country club, which seems very “Long Island” of her. As Patch reports, the effort took months of coordination by three different animal-rescue groups. Frankie Floridia from the Strong Island Animal Rescue League said that once they discovered where she was hiding, they set up a feeding station and cameras on the club’s golf course, checking the video and leaving food every day for Vienna. “We waited in our cars,” he told Patch. “We sat out there for many nights with no heat in the car, not speaking. We just waited for her.” In the highly suspenseful video of her capture, you can see as Vienna slowly enters the corral and wanders in as the doors suddenly swing shut. “The final night, with everyone’s hearts and heads in the same place, the stars aligned, and her capture went flawlessly,” a post on the rescue organization’s Facebook reads. The farm swears that Vienna had not been intended for slaughter, but surrendered her anyway to the Skylands Animal Sanctuary where she will live out her years in peace, free from both farm life and those country-club types.

“Pre-Development Real Estate & Land Banking.” Christopher Meza is the leading authority on pre-developed real estate. He is a nationally recognized speaker and best-selling author. Chris was recently the keynote speaker with Steve Forbes, Chairman and Editor-in-Chief of Forbes Magazine, at the “Success in the New Economy” conference. Christopher’s expertise is in land banking and pre-developed real estate. Christopher’s interviews can be seen on ABC, NBC, CBS, and FOX affiliates across the country. The point to consider is that the majority of people that invest in real estate ONLY invest in developed real estate (i.e. condos, homes, apartment buildings, hotels, shopping centers, etc). But good judgment reveals that to make greater than average profits with less risk, you have to be doing something that the masses are not doing, and pre-developed real estate is just that. Christopher will be our special guest at LAC-REIA’s February meeting. The title of Christopher’s presentation is “How to Find and Develop Pre-Development Real Estate.” Thursday night, February 9, 2023, 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. Metered street parking. RSVP: LARealEstateInvestors.com.

Vendors Expo Returns! Attend our super-duper "Real Estate Vendors Expo." Thursday night, February 9, 2023. The Vendor Expo opens at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as you invest in real estate. Our Vendor Expo will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission. Metered street parking. Please RSVP at www.LARealEstateInvestors.com.

New “LARealEstateInvestors.com” Podcast. We are so very excited about our podcast, "LARealEstateInvestors.com" (cleverly named after our domain) 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. Every week, Bill interviews real estate professionals sharing their insights and advice for real estate investors. Every Tuesday live at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.

This Week. Investors will continue to look for Fed guidance on the magnitude of future rate hikes and bond portfolio reduction. Retail Sales will be released by the Census Bureau on Wednesday. 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 our economy. Housing Starts will come out on Thursday from the Commerce Department and Existing Home Sales will be announced by the National association of Realtors on Friday.

Weekly Changes:

10-year Treasuries:            Fell    010 bps

Dow Jones Average:          Rose  500 points

NASDAQ:                           Rose  400 points

Calendar:

Wednesday (1/18):              Retail Sales

Thursday (1/19):                  Housing Starts

Friday (1/20):                       Existing Home sales

For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

310-409-8310