Monday Morning Quarterback

(Monday, March 6, 2023)

You would think with all this rain we’d be out of the drought. But not quite yet. California’s remarkably wet winter has certainly helped ease drought conditions considerably, with large swaths of the state (including the coast of Humboldt County, much of the snow-capped Sierra Nevada and the Santa Monica Mountains north of Malibu) no longer considered to be in drought, according to federal officials. The latest estimate from the U.S. Drought Monitor, released last Thursday, shows almost 17% of the Golden State has exited drought completely, with an additional 34% now classified as “abnormally dry.” But we’re not out of the woods yet. Half of our state remains under drought conditions, which range from moderate to exceptional drought. Officials attributed the development to the recent winter storms that dropped heaps of rain and snow in several regions, including Southern California and the Sierra, as well as nine atmospheric river storms that hammered California in January. According to their mapping, which includes data on hydrology, soil moisture and other climate indexes, “Central California’s Sierra Nevada mountains and foothills are now free of drought and abnormal dryness for the first time since January 2020.” The rain and snow arrived on the heels of California’s driest three years on record, which contributed to dramatically low reservoir levels, urgent conservation orders and a statewide drought emergency declaration. But there is no denying the torrential rain and snow made a difference. Statewide snowpack is 192% of normal, according to state data. In the southern Sierra, it’s 232% of normal. Snowpack typically provides about one-third of California’s water supply. Reservoirs have also seen a boost this winter, with Lake Shasta and Lake Oroville now at 60% and 73% of capacity, respectively, up from 34% and 37% two months ago. More rain and snow are expected next week and possibly throughout all of March. In other investor news, let’s dig into the details…

Mortgage Rates Jump Back Over 7%. The only bad news this week is that the average rate on the 30-year fixed mortgage jumped back over 7%, rising to 7.1%, according to Mortgage News Daily. Why? Because growing fears that inflation is not cooling off are pushing bond yields higher. (Mortgage rates loosely follow the yield on the 10-year Treasury bonds.) You may remember rates went over 7% last October. That was the highest level in over 20 years. But they pulled back in the following months, as inflation appeared to be easing. By mid-January rates were touching 6%, spurring a big jump in buyers signing contracts on existing homes. So-called pending home sales rose an unexpectedly strong 8% from December, according to the National Association of Realtors. But the past four weeks have been rough. Rates have moved 100 basis points higher since the start of February. As a result, mortgage applications from homebuyers have been falling for the past month and last week hit a 28-year low, according to the Mortgage Bankers Association. At the start of this year, with rates slightly lower, it appeared the housing market was starting to recover just in time for the traditionally busy spring season. But that recovery has now stalled. While the trajectory for rates now appears to be higher again, it is not necessarily guaranteed for the long term. Unfortunately, traders will be hesitant to push rates aggressively lower until they have several successive months of lower inflation. 

L.A. County Requires Retrofits In Aftermath Of Turkey Earthquake. Los Angeles County took the first step last week towards a mandatory earthquake retrofit order for the types of concrete buildings that collapsed catastrophically in the devastating earthquakes that shook Turkey and Syria (causing many of the 50,000 deaths tallied so far). The Board of Supervisors voted unanimously to prepare new rules that would require “non-ductile” concrete buildings owned by the county, as well as any located in unincorporated areas, to be retrofitted. Once the new rules go into effect, building owners would have 10 years to complete the retrofits. The supervisors also ordered officials to create an inventory in unincorporated areas of all “soft-story” residential buildings — structures vulnerable to come tumbling down in the next big earthquake. These older type of concrete buildings, targeted by officials, have a well-known defect discovered in the 1971 Sylmar earthquake. The deficiency involves an inadequate configuration of steel reinforcing bars in the concrete frames of buildings (many of which were built in the post-World War II building boom across California and around the world). The flaw of insufficient steel reinforcement in the concrete frame causes concrete to explode out of columns when shaken in an earthquake, a prelude to a catastrophic collapse. Following the 1971 earthquake, the buildings were declared to be non-ductile, meaning they’re brittle and prone to collapse in an earthquake. That type of construction was deemed so unsafe that it was banned for future construction by the 1980s. But most local governments have done little to order older buildings be evaluated and strengthened if found to be deficient. A number of these non-ductile concrete buildings collapsed in the 1971 Sylmar and 1994 Northridge earthquakes, which were magnitude 6.6 and 6.7, respectively. A U.S. Geological Survey simulation said it is plausible a magnitude 7.8 earthquake in Southern California could cause 50 non-ductile concrete buildings to fully or partly collapse, with as many as 7,500 people in them. The U.S. Geological Survey has called non-ductile concrete buildings among those that “pose the greatest risk to life safety.”

Granny Flat Fever. Accessory dwelling units, or “ADUs” (also known colloquially as “granny flats”) were seen by many as a way of addressing our affordable housing crisis. Their creation accelerated during the pandemic and is continuing to grow, according to experts and a new report. Among the reasons why ADUs are increasing in popularity now is an easier regulatory process to get approved. ADUs, secondary housing units with independent living facilities on a residential lot in addition to the main house, are typically converted garages or freestanding units in the backyard. San Francisco-based ADU builder Cottage (which has offices in Los Angeles and San Diego) recently released its 2022 “ADU Impact Report” looking at the rising demand for ADUs in California. The report found that Southern California remains the hottest ADU market in the country where demand outpaces actual builds. Even though California had begun to relax rules and regulations about creating ADUs in 2017, Governor Newsom more recently removed additional obstacles for Californians interested in building ADUs. The new laws went into effect in 2020. Among the directives: Californians are now permitted to create two ADUs on a single-family zoned property, one full accessory dwelling unit and one junior accessory dwelling unit, or “JADU.” Beginning in 2020, homeowners could also build a detached ADU spanning 800 square feet and 16 feet tall without any local discretionary approvals. ADUs created by conversions were also granted automatic approval. The result of the state laws has been reflected in the number of permits issued. In 2021, a total of 3,371 ADU permits were issued, according to publicly available Department of Building and Safety data. The figure was surpassed last year, as 4,999 permits were issued in 2022. And already 2023 is ahead of last year.

Orange County Malls Get New Life As Apartments. Indoor malls are ghost towns these days. But if developers and city officials have their way, a new kind of mall, one that includes beautiful lawns, walking trails and thousands of apartments is its future. In fact, it is the possible solution to the region’s affordable housing crisis. In Orange County, the San Fernando Valley and suburbs throughout America, the mall was a gathering spot for years when there were few other places to hang out. It was where kids stocked up on the latest fashions and roamed in packs after school, spawning the term “mall rat.” The 1980s cult classic “Fast Times at Ridgemont High” began and ended at the mall where the teens worked. In the 1995 film “Clueless,” a Beverly Hills teen retreated to the mall, which she described as a “sanctuary,” after failing to persuade a teacher to boost her grade. Now, teenagers text with their friends and make TikTok videos. Their parents are more likely to shop online than at a brick-and-mortar store. At the same time, Orange County is desperate for housing, with rents and home prices escalating and state laws requiring cities to zone for new construction. In a region where there is little undeveloped land and neighbors are likely to push back at new housing, some see declining malls as ideal places to build. The Westminster Mall, City Manager Christine Cordon told the City Council during a meeting last November, is the perfect location for new housing. As envisioned in a plan adopted by the City Council, the new mall would contain at least 600,000 square feet of retail space. It would also include up to 3,000 residential units and up to 425 hotel rooms, surrounded by a park with 17 acres of green space. As for who will rent or purchase the homes in the preliminary plan, O.C. is counting on a modern type of suburban dweller: one who would rather walk to restaurants and other amenities than live in a single-family home with a yard.

Spend a Weekend at Phil Spector Murder House? It’s got a gourmet kitchen, a fitness center, and a grand ballroom. But the thing that sets this 1924-built hilltop mansion in Alhambra apart from its neighbors is that it happens to be the house where the late record producer Phil Spector murdered actress Lana Clarkson in 2003. And now, for just $8,400, you can spend a weekend in one of its nine bedrooms. “When the murder happened, it had old red carpeting,” says Cordelia Culver, a former set decorator who has renovated the 1924 estate and rents it out as a filming location, event space, and vacation rental on Airbnb. “But Spector’s wife said she couldn’t get the [blood] stains out, so she ripped it out.” Culver insists that not everyone who rents the place is aware of its tragic past. “The murder was 20 years ago,” she says. “Most of the younger generation has no idea who Spector was.” Nor has she advertised the house’s history. On the contrary, one of the first things she did was paint over the sign in front welcoming visitors to “Phil Spector’s Pyrenees Castle.” (She’s renamed it “Wrensmoor.”) Instead, she says, she’s “tried to be respectful, especially in the foyer where the murder took place.” But still, what does she do about the ghosts that roam the halls at night?

Barbie House vs. Batman House.  On a sunny day in Santa Monica, most tourists flock to the pier or take a stroll along the boardwalk. But a select few splinter off to catch a glimpse of a lesser-known attraction a couple of blocks away: the “Barbie House.” It’s hard to miss the striking structure but easy to see how it earned its nickname. Clad in vibrant shades of purple and pink, the home looks like a super-sized doll house. For years, rumors have swirled that it was built for Barbie creator Ruth Handler. Right next door stands the antidote for the home’s saccharine display: a neighboring property painted entirely black. Angelenos call it the “Batman House.” If the Barbie house is Dr. Jekyll, this is its Hyde. Google Maps identifies the two homes as the “Goth & Bubblegum Houses,” and they’ve gone viral in recent years thanks to their stark contrast in style, which seemingly represent two ends of multiple spectrums. Cool vs. crazy. Quiet vs. loud. Minimalist vs. maximalist. Seemingly every passerby identifies with one over the other. Together, the homes have created an odd new Instagram destination, even if their claim to fame is only skin-deep. So how did the two homes become so inextricably linked? By complete accident. In the 1990s, the duo was actually part of a trio called the Sherbet Homes, which got its name after a developer bought three neighboring properties along Pacific Coast Highway and painted them pastel shades. The first was painted baby blue, the second seafoam-green and yellow, and the third was dolled up with the pink-and-purple “Barbie” look that remains today. But over time, tastes change. In 2007, the baby-blue house sold to a new owner who stripped the siding and painted it brown, casting the home back to anonymity. The seafoam-green house traded hands in 2012, and the new owner installed the all-black look that it has today. So the pink house is the only one of the three that still boasts its original style. And that won’t change anytime soon. The current owners apparently don’t want to change it and enjoy the notoriety. Just don’t knock on their door! 

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.

“How to Fix and Flip Houses” When it comes to flipping houses, you’ll want to see Don Costa. Don has fixed and flipped numerous houses around the Fresno area, written extensively about his experiences, and has a popular podcast on the subject. Don will be our special guest speaker at our March general meeting. Don’t miss Don’s presentation. Thursday night, March 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.

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.   

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. Investors will be closely watching to see if Fed officials elaborate on their plans for future rate hikes after the unexpected recent rise in inflation. The Trade Deficit and the JOLTS (job openings) data will come out on Wednesday. The key Employment report will be released on Friday by the Bureau of Labor Statistics, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month.

Weekly Changes:

10-year Treasuries:            Rose  010 bps

Dow Jones Average:          Rose  300 points

NASDAQ:                           Rose  200 points

Calendar:

Wednesday (3/8):                 JOLTS

Wednesday (3/8):            Trade Deficit

Friday (3/10):                   Employment 

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