Monday Morning Quarterback

(Monday, February 6, 2023)

Last Thursday morning, 30,000 early risers in Gobbler's Knob Pennsylvania (population 6,000) turned out (or more accurately bundled up) to watch Punxsutawney Phil emerge from a tree stump (aka “hibernation”) and predict the weather. The annual ritual features dancers, music, speeches, visitors from around the world, and lots of hubbub. Phil (arguably the most famous marmot, ground squirrel, and certainly the most recognizable of all the country's animal prognosticators) did what he has done for the last 137 years: search for a sign of spring in front of a group of top hat-wearing handlers and adoring fans. Tradition says that North America will get six more weeks of winter if Phil sees his shadow and an early spring if he does not. Unfortunately, on this blustery winter morning, Phil saw his shadow. But don’t worry, as a Pennsylvania native, I can assure you that Phil's accuracy rate is only 39% over the last decade. Plus, human meteorologists have far more sophisticated methods for predicting the weather now than they did when Phil first got the gig in 1886. Besides, we all have cellphones these days that predicts the weather right on our screens. Why, then, do we continue looking to groundhogs for weather predictions, year after year after year? (One could say it's like the 1993 comedy "Groundhog Day.") Let’s just say tradition. The "Punxsutawney Groundhog Club" was founded in 1886 by a group of groundhog hunters, one of whom was the editor of the town's newspaper and quickly published a proclamation about its local weather prognosticating. And the rest, as they say, is history. Coincidentally, Groundhog Day also coincides with the time of year when groundhogs in the northeastern U.S. start to emerge. The males typically come out first and begin looking for females with whom to mate. So, in reality, Groundhog Day is more a holiday about sex than the weather! In honor of Groundhog Day, let’s check out the latest real estate investor news…

Federal Reserve Raises Fed Funds Rate 0.25% As Inflation Slows. The Federal Reserve announced it has raised its key federal funds rate by 0.25% last Wednesday as it puts downward pressure on economic growth in its bid to slow inflation. It was the smallest rate hike since the central bank began an aggressive campaign that has produced nearly monthly rate hikes since March. It's all part of an effort to slow price increases that have bedeviled U.S. consumers. While there are now ample signs that inflation is, indeed, decelerating, some indications suggest that our economy is already reflating, which could send prices creeping up again. According to a Bloomberg Index, financial conditions in the U.S. have eased to their loosest level since last February, meaning it is becoming easier to borrow money and sell goods again. That's reflected in declining average mortgage rates, which have fallen back below 6% after having hit a high of 7.08% in November. In addition, rising prices of commodities like oil, as well as a weakening U.S. dollar and improvement in the performance in the stock market, have all contributed to some cautious optimism about our economy. For now, economists say that recession fears appear to be unwarranted and that, if anything, there remains a risk that the Fed will have to continue its monetary tightening to prevent our economy from growing too fast again. The Fed will continue to emphasize that it will keep interest rates higher for longer, even if it comes at the expense of gains in wages and employment.

Unemployment Rate Falls to 54-Year Low. Amazingly, the number of new jobs created in January rose by 517,000 to mark the biggest gain in six months. This suggests persistent strength in a muscular U.S. labor market even though our economy has shown signs of fraying. It could also put more pressure on the Federal Reserve to take sterner measures to combat inflation. Employment grew even faster in the waning months of 2022 than previously reported, indicating the labor market is still quite robust. What’s more, the unemployment rate slid to a 54-year low of 3.4% from 3.5%, the Department of Labor reports. That’s the lowest level since 1969. Still, the broad strength of the report is likely to worry the Federal Reserve and keep the heat on the central bank to raise interest rates. The Fed has been worried about the tight labor market driving up wages and making it harder to bring down high inflation. Most major industries added workers last month. Hotels and restaurants (128,000) led the way, but hiring was also strong among health care providers and white-collar professional businesses. The only parts of our economy to shed jobs was information services, a category that includes the media and some high-tech businesses. As you’ve heard in the media, Many companies in those fields have announced layoffs in recent months. Yet the labor market has also proven quite resilient and lots of businesses are reluctant to fire workers given how hard it was to hire them in the first place. The U.S. might even be able to avoid a recession if job losses remain on the low side. Businesses continue to try and retain as many workers as they can, despite a slowdown in economic activity and an increasingly uncertain outlook.  

Mortgage Rates Drop To The 5% Range For First Time Since September. Good news fellow investors, the average rate on the 30-year fixed rate mortgage has fallen to 5.99%, according to Mortgage News Daily. The housing market hasn’t seen the rate with a “five” since a brief blip in early September. Before that, it was in early August. So lots to celebrate. The rate started this week at 6.21% and fell sharply last Wednesday after the Federal Reserve Chairman Jerome Powell said inflation “has eased somewhat but remains elevated,” which was a shift from previous language. That sent bond yields higher, and mortgage rates follow loosely the yield on the 10-year Treasury. Mortgage rates peaked in October with the 30-year fixed at 7.37% and have been sliding ever since. For potential homebuyers that means savings. For example, a consumer purchasing at $400,000 home today with a 20% down payment, the monthly payment is $293 less than it would have been in October. Lower rates already appear to be juicing buyer interest.

Home Prices Fall For 5th Straight Month in November. The S&P CoreLogic Case-Shiller “20-City Price Index” fell a seasonally adjusted 0.5% in November, marking the fifth consecutive monthly decline. (The Case-Shiller Index always reports three months behind.) Year-on-year appreciation was still up 8.6% annually, but down from a 10.4% increase in October. A broader measure of home prices, Case-Shiller’s “National Index,” fell by a seasonally adjusted 0.6% in November. Miami, Tampa and Atlanta reported the largest year-over-year gains among the 20 cities in November. All 20 cities reported lower price increases for the year. In November, 19 cities reported seasonally adjusted declines, with only Detroit increasing 0.1%. A separate report from the Federal Housing Finance Agency showed home prices falling 0.1% in November after remaining flat in the prior month. There is some optimism in the housing sector as mortgage rates have backed off 100 basis points since their October highs. Prices are expected to continue to fall for several months. Doug Duncan, chief economist at Fannie Mae, expects housing to help keep our economy from a severe downturn. Let’s hope he is right.

Homeless Population Is Higher Than Previous Counts. An independent study performed by a non-profit think tank, the Rand Corporation, found that homelessness has increased by an average of 18 percent since the last official count, now totaling over 65,000 (which is larger than half of all America’s cities). In a report released last summer, the Los Angeles Homeless Services Authority found that, after increasing 23 percent in two years, the unhoused population had risen by just five percent during the two years of the pandemic—a time in which it was believed that the homeless population would increase significantly, the Los Angeles Times reports. Even more surprising, LAHSA found that the homeless population had significantly decreased in three communities widely identified as homeless hotspots: Skid Row, Venice, and Hollywood. However, Rand’s count, conducted between September 2021 through October 2022, contradicts LAHSA’s findings, recording a significant increase in the number of homeless people in those areas. In Venice the increase was 32 percent, while the number rose 13 percent on Skid Row and 14.5 percent in Hollywood, for an average of 18 percent. Rand argues that LAHSA’s three-day study is particularly vulnerable to inaccuracies (human, technical, and analytical), as it is largely conducted by volunteers with little training who document their findings on their phones. Of more than 400 unsheltered people surveyed, nearly 80 percent reported being homeless for over a year, with 57 percent saying they have been unhoused for over three years. Approximately 50 percent “of those same individuals reported having a chronic health and/or mental health condition,” according to Rand.

Foreclosure Activity Doubles. ATTOM Data Services released its Year-End 2022 “U.S. Foreclosure Market Report,” which shows foreclosure filings (i.e. default notices, scheduled auctions and bank repossessions) were reported on 324,237 U.S. properties in 2022, up 115 percent from 2021. Those 324,237 properties with foreclosure filings in 2022 represented 0.23 percent of all U.S. housing units, up slightly from 0.11 percent in 2021. “Eighteen months after the end of the government’s foreclosure moratorium, and with less than five percent of the 8.4 million borrowers who entered the CARES Act forbearance program remaining, foreclosure activity remains significantly lower than it was prior to the COVID-19 pandemic,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “It seems clear that government and mortgage industry efforts during the pandemic, coupled with a strong economy, have helped prevent millions of unnecessary foreclosures.” Nevertheless, lenders repossessed 42,854 properties through foreclosures (REO) in 2022, up 67 percent from 2021. Lenders started the foreclosure process on 248,170 U.S. properties in 2022, up 169 percent from 2021. States that saw the greatest number of foreclosure starts in 2022 included our very own California (27,269 foreclosure starts); Texas (23,151 foreclosure starts); Florida (22,968 foreclosure starts); Illinois (16,941 foreclosure starts); and Ohio (13,469 foreclosure starts). Those metropolitan statistical areas with a population greater than 1 million that saw the greatest number of foreclosure starts in 2022, included New York, New York (15,821 foreclosure starts); Chicago, Illinois (14,360 foreclosure starts);of course Los Angeles, California (8,185 foreclosure starts); Philadelphia, Pennsylvania (7,286 foreclosure starts); and Miami, Florida (7,090 foreclosure starts). States with the highest foreclosure rates in 2022 were Illinois (0.49 percent of housing units with a foreclosure filing); New Jersey (0.45 percent); Delaware (0.40 percent); Ohio (0.38 percent); and South Carolina (0.37 percent).

Jeddah Tower Construction Stalled. Remember the “Jeddah Tower”? When built, it was to be the tallest building in the world. Launched in 2008, the Jeddah Tower was the brainchild of Saudi billionaire Prince Alwaleed bin Talal, at the time the country’s most high-profile royal entrepreneur, before the crown prince became the kingdom’s de facto ruler. A $1.5-billion, 252-story Y-shaped skyscraper with apartments, a Four Seasons Hotel and hyper-fast elevators that would rocket visitors to the observation deck on the 157th floor in just over a minute. Yikes, that gives me vertigo just writing that last sentence! It was to form the nucleus of a new downtown district drawing entrepreneurs in tech and tourism as the country diversified its economy away from oil. Instead, six years after it was to open, it remains a construction site with no construction and looms as a giant question mark over Saudi Crown Prince Mohammed bin Salman’s gamble to overhaul his country of 36 million people. Crowned with cranes, the Jeddah Tower emerges in the distance as an under-construction 826-foot-tall spaceship presiding over Saudi Arabia’s second-largest city. The tower’s planned height of more than 3,280 feet was a riposte to Dubai’s “Burj Khalifa,” (world’s tallest building). The two projects share the same “starchitects,” Adrian Smith and Gordon Gill. Construction progressed rapidly at first, erecting 63 stories by the end of 2017. Then Mohammed became crown prince and launched an anti-corruption purge that ensnared Prince Alwaleed and the Bin Ladin Group, the tower’s main contractor. Work stalled; just as it was about to restart in 2020, the pandemic hit. Still, a recent visit to the site shows no sign of progress or even preparations to restart construction. Consultants privately wonder whether that means the Jeddah Tower is orphaned. Some speculate that an alternative plan could be to finish it at its current height or tear it down and start something new, despite more than a third of the concrete having already been poured and a lot of money spent. Any suggestions?

The famous Garcia House Is Listed For Sale. Speaking of vertigo, anyone interested in buying the Garcia House? Located at 7436 Mulholland Drive, in the Hollywood Hills, the "Garcia House" is an iconic masterpiece designed by my favorite architect, the world-renowned John Lautner. The house consists of 3 bedrooms and 3 bathrooms within 2,596 square feet. Built in 1962, the home underwent a historic restoration by Marmol Radziner, with a focus on preserving original details and functionality. The property boasts a number of timeless features including a lava rock entryway, original terrazzo flooring, signature parabolic roof, a 55-foot wall of windows, and 60-foot caissons elevating the structure above the canyon, showcasing breathtaking panoramic views of Los Angeles. A descent down the hillside steps brings you through the verdant garden, designed by landscape architect John Sharp, to the pool which was built in 2008 using Lautner's original design. The listed price is $16 million, which means the price per square foot is $6,163.00. By the way, in case you were wondering, the payment on a 30-year fixed is only $78,729.00 per month. Sure beats rent.

“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 commented 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.

Gold Membership. Frankly, I don’t understand why every investor doesn’t sign up for Gold Membership in LAC-REIA? It’s the best deal since ice cream! You get to attend LAC-REIA’s seminars and workshops for FREE (i.e. Basic Training Boot Camp), you attend your own private Gold meetings, you are offered wholesale deals before the general public, and you meet some really great people. What a deal! $497.00 for individuals per year and $597.00 for families. Sign-up at www.LARealEstateInvestors.com.

This Week. From feast to famine, there are no significant economic events scheduled for next week. Nevertheless, investors will be closely watching to see if Fed officials elaborate on their plans for future rate hikes. The economic reports released this week will include just the Trade Deficit, Jobless Claims. Also, the University of Michigan’s Consumer Sentiment Index will be released (which rarely causes much reaction). Investors will be mostly looking ahead to the important CPI inflation report on February 14. 

Weekly Changes:

10-year Treasuries:            Flat    000 bps

Dow Jones Average:          Fell    100 points

NASDAQ:                           Rose  400 points

Calendar:

Tuesday (2/7):                      Trade Deficit

Thursday (2/9):                     Jobless Claims

Friday (2/10):                        Consumer Sentiment

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