Monday Morning Quarterback

(Monday, January 30, 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 hovered in the low 50s since 2012. With this in mind, let us “middle classers” get under the hood…

Housing Starts Fell In 2022 As Nation Builds Fewer Homes. Construction on new U.S. homes fell a seasonally adjusted 1.4% in December to 1.38 million, the Commerce Department said Thursday. The drop in construction on homes followed the decline in November, when housing starts also fell by 1.8%. In fact, housing starts are at the lowest level since July 2022. The annual rate of total housing starts fell from 21.8% from the previous year. In 2022, America began building 1.55 million homes. That’s 3% less than what started in 2021. On an unadjusted basis, housing starts fell 10.7% in December. The construction pace of single-family homes jumped 11.3% in December but apartments fell 18.9%. While rates are dropping and buyers are coming back on board, builders are still feeling gloomy overall about the future. They’re keen to offload existing inventory, and are scaling back new construction as costs rise. This is likely to increase the shortage of homes in America. “Both housing starts and building permit surprised on the upside in December, falling only 1.4% and 1.6%, respectively,” Jefferies economists wrote in a note. However, permits are running below starts which is very rare, and suggests construction pipelines are drying up very fast. Building permits for new homes fell 1.6% to 1.33 million in December. Permits for single-family homes fell 6.5% in December, while permits for buildings with at least five units rose by 7.1%.

Existing-Home Sales Fall For Eleventh Straight Month. Existing-home sales fell to 4.02 million annualized in December, the National Association of Realtors reports. This is the 11th straight monthly decline in existing-home sales. The losing streak is the longest since NAR began tracking sales in 1999. The level of sales activity was lowest since November 2010 (in the midst of the foreclosure crisis in America). Compared with December 2021, home sales were down 34%. The last time existing home sales dropped by this magnitude was in 2008. The median price for an existing home fell to $366,900 in December, from $370,700 in November. The number of homes on the market fell 13.4% to 970,000 units in December. Expressed in terms of the months-supply metric, there was a 2.9-month supply of homes for sale in December, down from the previous month. (Before the pandemic, a four- or five-month supply was more the norm.) Homes remained on the market for 26 days on average, up from 24 days in November. Pre-pandemic, the average time for homes to remain on the market was a month. Overall, mortgage rates moved lower last week, and buyers are slowly coming back to the real-estate market. A small dip in rates prompted a 28% surge in mortgage demand last week. So with rates continuing to move downwards, sales may rebound in the next few months, breaking an 11-month losing streak. But the market still has to figure out inventory, since there are so few homes for sale on the market. And as rates move lower, that will “help to boost demand for homes generally,” And it will also lessen the impact of homeowners being ‘trapped’ in their current locations.

New Home Sales Rise By 2.3%. In contrast to existing home sales, new home sales in the United States rose 2.3% to a seasonally-adjusted rate of 616,000 in December, the Commerce Department reported Thursday. This is the third month in a row that new home sales have risen. Year-over-year, new home sales are still down by 26.6%. The new home sales data are volatile month-on-month and are often revised. The median sales price of a new home sold in December was $442,100. The supply of new homes for sale fell by 2.2% between November and December, equating to a 9-month supply. Looking at 2022 overall, 644,000 new homes were sold, the government says. In 2021, 771,000 new homes were sold. Although mortgage rates are falling, there’s still a shortage of homes available for sale for eager home buyers. Since home builders are one of the biggest contributors at the present moment to the housing supply, they’re seeing a jump in sales. Existing-home sales, on the other hand, are down as homeowners sit on homes with ultra-low mortgage rates. Builders are also successfully moving inventory by offering deals, like mortgage rate buydowns and other concessions. Yes, new homes sales rose, but they form a “very small part of overall home sales, less than 10%.” Overall, high mortgage rates continue to hit affordability, which continues to weigh heavily on home sales.

3D-Printed 2-Story Homes In Houston. 3D printing is taking home construction to new heights. In Houston, a giant printer is building what designers say is the first 3D-printed two-story house in the U.S. The machine has been pouring a concrete mix from a nozzle, one layer at a time, in hot weather and cold, alongside a sparse on-site workforce, to create a 4,000-square-foot home. While construction 3D printing has been around for over a decade, the technology has only started to break ground in the homebuilding market over the last couple of years, said Leslie Lok, the architectural designer for the project. Several 3D-printed homes have already been built or are currently in the works across a handful of states. Lok, who co-founded the design firm Hannah Design, says her team aims to eventually scale up their designs to be able to efficiently 3D print multifamily homes. The three-bedroom home is a two-year collaboration between Hannah, Germany-based Peri 3D Construction and Cive, an engineering and construction company in Houston. Proponents of the technology say 3D printing could address a range of construction challenges, including labor shortages and building more resilient homes in the face of natural disasters. With the Houston home, the team is pushing the industrial printer to its limits to streamline the technology, in the quest to quickly build cost-effective and well-designed homes. That said, timing is not of the essence for this novel project. Lok calls the two-story house a "big laboratory" where colleagues will study the technology's potentials in home construction. Concrete can better withstand strong winds and storms, but it's a pricier building material compared to, say, wood. While in the long-term the durable and low-maintenance material may save money, Lok says, its preparation and installation is expensive and labor intensive. But once the 3D-printing technology is improved, she says, builders may reach a point where such construction is cheaper than non-printed housing.

New California Housing Law Has Done Little To Encourage Building. Once seen as the death knell for single-family-home neighborhoods in California, a new law meant to create more duplexes has instead done little to encourage construction in some of the largest cities in the state, according to a new report published Wednesday. Senate Bill 9 was introduced two years ago as a way to help solve California’s severe housing crunch by allowing homeowners to convert their homes into duplexes on a single-family lot or divide the parcel in half to build another duplex for a total of four units. The law went into effect at the start of 2022. The bill received bipartisan support and ignited fierce debate between its backers (who said SB 9 was a much-needed tool to add housing options for middle-income Californians), and critics (who blasted it as a radical one-size-fits-all policy that undermined local government control). But alas, neither argument has so far proved to be true. Across 13 cities in the state, SB 9 projects are “limited or nonexistent,” according to a new study by the UC Berkeley Terner Center for Housing Innovation. The cities are Anaheim, Bakersfield, Berkeley, Burbank, Danville, Long Beach, Los Angeles, Sacramento, San Diego, San Francisco, San Jose, Santa Maria and Saratoga. By the end of November, the cities had collectively received 282 applications for SB 9 projects, and had approved only 53. Los Angeles accounted for the bulk of applications with 211 submitted and 38 approved, according to the report. San Francisco received only 25 applications and had approved only four, while San Diego received seven and had approved none!  Applications for dividing lots seem to be even less popular than building duplexes. Just 100 applications were submitted, the report noted, and 28 had been approved. David Garcia, Terner Center’s policy director, said SB 9 is only in its first year of implementation and should be given more time before it’s judged as ineffective. But he added that lawmakers should consider whether the law needs tweaking. In stark contrast, between the start of 2017 and January 2023, the city of Los Angeles reported receiving 35,098 applications for ADUs. It has issued permits for 25,881 and 13,640 have been granted certificates of occupancy.

Joshua Tree’s Invisible House Lists for $18 Million. In the early 2010s, Chris and Roberta Hanley were enjoying their off-the-grid vacation home in Joshua Tree, California, when they were informed that their 720-square-foot prefab house violated local regulations. If they wanted to keep living on the land, they would have to build something bigger. Mr. Hanley, a movie producer and artist, quickly got to work sketching an idea for a new home. He was inspired, he said, by the black cuboid monolith in the film “2001: A Space Odyssey” as well as the work of architect Ludwig Mies van der Rohe, who designed the Seagram Building in New York City. He would later compare the design to an alien life form, or a skyscraper lying on its side. The resulting house, completed in 2019 and now coming on the market for $18 million, has an entirely reflective glass exterior that mirrors the rocky landscape, making the property blend in with its surroundings. Designed with the help of architect Tomas Osinski, the so-called “Invisible House” is well known in the area and has been featured on Netflix’s “The World’s Most Amazing Vacation Rentals.” It has also drawn renters including musicians Diplo and Demi Lovato. Sitting on nearly 70 acres abutting Joshua Tree National Park, the rectangular house is about 225 feet long and spans roughly 5,500 square feet. One end is cantilevered off the ground on caissons, so it appears to hover above Joshua Tree’s famed rock formations. The house is intended to feel like one large, floating space, with as few partition walls as possible, Ms. Hanley says. On three sides of the home, the glass slides open to the outdoors. Between the primary bedroom and the two other bedrooms sits a large, open-plan living area containing a 100-foot-long indoor pool. Ms. Hanley said they put the pool inside the house as a way to create their “own ecosystem” in the desert, and bring moisture into the house. Building the property took about six years and millions of dollars. It took a year just for the glass to be delivered. The steel beams cost half a million dollars, while the cost of the glass ran close to $700,000. At $18 million, Invisible House will be by far the most expensive home on the market in Joshua Tree, where the median price is around $400,000, according to website Redfin. 

L.A. County Extends Eviction Moratorium 2 Months. Landlords, are you sitting down? With Los Angeles County’s pandemic eviction moratorium set to lapse tomorrow, the Board of Supervisors has voted to extend the countywide renters protections once more. The moratorium will now expire at the end of March. This, county leaders say, will be the last time they push the end date. Although we’ve heard that before. The moratorium, first put in place at the coronavirus pandemic’s outset, was set to end Jan 31. But with some on the board still worried about the lingering financial impacts of the pandemic, county leaders voted Tuesday to extend the countywide moratorium through March 31. Under the moratorium, landlords cannot evict low-income tenants who say they were financially harmed by COVID-19 and can’t pay rent. Through the pandemic, the moratorium has acted as a safety net for renters across L.A. County. It applied to all unincorporated areas and cities that did not have their own moratorium in place. And on Feb. 1, the city of Los Angeles is poised to become one of those cities. Because Los Angeles City will no longer have its own eviction moratorium, the county’s moratorium will apply to residents of the city of Los Angeles starting Feb. 1. The Board passed the two-month extension on a 3-1 vote. Our hero, Supervisor Kathryn Barger, voted no, voicing concern for the county’s mom-and-pop landlords who she felt had gone unpaid for too long. “We have to recognize that the landlords serve a purpose too,” said Barger, who emphasized she had “serious, serious reservations” about the proposal. Barger worries landlords have been left out of the conversation. Barger wants more rent assistance going to landlords. Fortunately, in a separate motion, the Board directed $45 million in rental assistance for the county’s smaller landlords. Many landlords and property managers called in to Tuesday’s meeting, urging the Board to let the moratorium expire this week as they had originally intended. BTW, countywide eviction filings surged in 2022 after remaining far below pre-pandemic levels through 2021.

Trader Joe's Annual List of Customer Top 8 Favorites. For the 14th year in a row, supermarket chain Trader Joe's has released its “Customer Choice Awards,” spotlighting the products that its famously loyal shoppers love the most. The chain polled 18,000 customers on its website and Instagram account with the question "If you were to spend the rest of your life on a deserted island, which nine Trader Joe's products would you take with you?" The poll was open for the first few weeks of 2023, with results then split up into eight categories such as snack, entree and household product. The current reigning champion at Trader Joe's is the Chili & Lime Flavored Rolled Corn Tortilla Chips, which the supermarket's copywriters describe as "spicy, ire-zest-tible little scrolls made from stone ground corn masa." Several products were ineligible for the contest because they have won their categories several times in past years. These were inducted into the newly created Trader Joe’s “Product Hall of Fame.” They include the Mandarin Orange Chicken, Dark Chocolate Peanut Butter Cups, Peanut Butter Filled Pretzel Nuggets, Unexpected Cheddar and Soy Chorizo. Here are Trader Joe's customers' eight favorite products this year and how much they cost.

No. 1 Snack: Chili & Lime Flavored Rolled Corn Tortilla Chips ($2.99)

No. 2 Cheese: English Cheddar with Caramelized Onions ($9.99 per pound)

No. 3 Entree: Butter Chicken with Basmati Rice ($4.49)

No. 4 Household product: Scented candles (prices vary)

No. 5 Produce: Bananas (25 cents each for organic, 19 cents for regular)

No. 6 Dessert: Mini Ice Cream Cones ($3.79)

No. 7 Vegan: Kale & Cashew Pesto ($3.99)

No. 8 Beverage: Sparkling Honeycrisp Apple Juice (price not currently available)

“Land Banking for Real Estate Investors.” The number #1 authority in the United States on Land Banking, Christopher Meza, will be our special guest at our February meeting. Land Banking is the practice of buying raw undeveloped land in the path of growth. The land must meet certain growth criteria because the criteria is the pivotal difference between a speculative land purchase and a replicable successful land investment. Most importantly, there must be a major development clearly identified within three miles of the land you’re acquiring (“Anchor”). It is called an anchor because that major development acts as an “anchor” to future development surrounding that major development. Don’t miss Christopher’s presentation. 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 world-famous "Real Estate Vendors Expo." Thursday night, February 9, 2022. 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.

Parking. Recently attendees have complained about the lack of parking. But fear not. If there is no available street parking when you arrive, there are two FREE parking structures just two blocks away. The first structure is at the northeast corner of Motor and Palms. The second structure is at the northeast corner of Motor and National. From either lot it is short two blocks walk to the Iman.   

Basic Training Boot Camp. Saturday, February 25, 2023, 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 (it’s really Culver City, but don’t tell anyone). The cost of the Boot Camp is $149.00 per person, if paid before February 18. After February 18, the price jumps to $1 million per person. So don’t wait to register. Gold Members (and former Boot Campers) can attend for FREE. You can register at LARealEstateInvestors.com.

New “LARealEstateInvestors.com” Podcast. We are so very excited to announce our new podcast, "LARealEstateInvestors.com" (named after our domain) hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor forever! 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 for real estate investors. Every Tuesday live at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.

This Week. There will be two extremely important events next week. Ton Tuesday, S&P Corelogic’s case-Shiller national home price index for November will be released. The Federal Open Market Committee’s meeting will take place on Wednesday, where I’m guessing a 25-basis point increase in the federal funds rate is likely (4.50% to 4.75%). As always, the post-meeting press conference with Chairman Jerome Powell will be closely watched for hints about the Fed’s next moves. In particular, investors will look for guidance on the magnitude of future rate hikes and bond portfolio reductions. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be some of the most highly anticipated economic data of the month. In addition, the ISM national manufacturing sector index will come out on Wednesday and the ISM national services sector index on Friday.

Weekly Changes:

10-year Treasuries:            Rose  050 bps

Dow Jones Average:          Rose  600 points

NASDAQ:                           Rose  400 points

Calendar:

Wednesday (2/1):                 Fed Meeting

Friday (2/3):                          Employment

Friday (2/3):                          ISM Services

For further information, comments, and questions

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

This email address is being protected from spambots. You need JavaScript enabled to view it.

310-409-8310