Monday Morning Quarterback

(Monday, April 3, 2023)

Mortgage rates fell to their lowest level in six weeks. The 30-year mortgage rate is averaging at 6.32% Freddie Mac said in its weekly survey. By the way, rates were 4.67% at the same period last year. Mortgage rates slid down to the lowest level in six weeks as consumers feel uncertain about the state of our economy. That’s down 10 basis points from the previous week (one basis point is equal to one hundredth of a percentage point). The 30-year was last at this level in mid-February. The average rate on the 15-year mortgage fell to 5.56%, from 5.68% the previous week. The 15-year was at 3.83% a year ago. Freddie Mac’s weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage. Separate data by Mortgage News Daily said that the 30-year fixed-rate mortgage was averaging at 6.61% as of Thursday morning. “Over the last several weeks, declining rates have brought borrowers back into the market but, as the spring homebuying season gets underway, low inventory remains a key challenge for prospective buyers,” Sam Khater, chief economist at Freddie Mac, said in a statement. In other real estate investor news, let’s get down into the weeds…

Home Prices Fell in January for Seventh Straight Month. The S&P CoreLogic Case-Shiller National Home Price Index (which measures home prices across the nation), fell 0.2% in January compared with December on a seasonally adjusted basis. Prices have fallen for seven straight months, the longest streak of declines since 2012. On a year-over-year basis, the index rose 3.8% in January, down from a 5.6% annual rate the prior month. The annual increase was the smallest since December 2019. The rise in mortgage rates in the past year has limited home sales and slowed home-price growth. Rates rose above 7% in October and November and have fluctuated so far this year. The average rate for a 30-year fixed mortgage was 6.42% in the week ended March 23, up from 4.42% a year earlier, according to Freddie Mac. “Rising mortgage rates and growing affordability challenges have led to slower home price growth,” said Lisa Sturtevant, chief economist at Bright MLS. Prices are declining fastest in Western markets, such as Seattle, where prices fell a seasonally adjusted 1.5% in January from the prior month, and Las Vegas, where prices fell 1.1%. The Case-Shiller index, which measures repeat-sales data, reports on a two-month delay and reflects a three-month moving average. Homes usually go under contract a month or two before they close, so the January data is based on purchase decisions made early this year or late last year. Case-Shiller has two more relevant indexes. The Case-Shiller 10-City Index gained 2.5% over the year ended in January, compared with a 4.4% increase in December. The 20-City Index rose 2.5%, after an annual gain of 4.6% in December. Miami had the fastest annual home-price growth in the country, at 13.8%, followed by Tampa, at 10.5%. The weakest market was San Francisco, where prices fell 7.6% on an annual basis.

Best Counties For Buying Single-Family Rentals In 2023. The “2023 Single-Family Rental Market” report, was released by ATTOM data services last week. It ranks the best U.S. markets for buying single-family rental properties in 2023. The report shows that the average annual gross rental yield on three-bedroom properties (annualized gross rent income divided by purchase price) among the 212 counties analyzed is projected to be 7.5 percent in 2023. That is up from an average of 6.7 percent in 2022 in those same markets and marked the first time since 2019 that the figure rose across the country. With rental yields on the rise, rents are increasing faster than home prices across most of the country. From 2022 to 2023, three-bedroom rents rose more than single-family home prices in 192 counties, or 91 percent, of the markets analyzed. Rents commonly have risen by around 5 percent to 20 percent over the past year, while changes in home values have typically ranged from a 5 percent loss to a 5 percent gain. “The broader housing market didn’t fare nearly as well in 2022 as it did in 2021. Prices finally hit the wall, at least temporarily. But that appears to be benefitting the growing number of investors around the U.S. who rent out single-family properties,” said Rob Barber, chief executive officer at ATTOM. “Rents for single-family homes are growing while prices have flattened out, which has helped boost yields for landlords for the first time in at least several years.” Counties with the highest annual gross rental yields for 2023 are Indian River County, FL, in the Sebastian-Vero Beach metro area (15 percent); Collier County, FL, in the Naples metro area (14.7 percent); Wayne County, MI, in the Detroit metro area (13 percent); Mercer County, NJ, in the Trenton metro area (12.7 percent) and Charlotte County, FL, in the Punta Gorda metro area (12 percent). Aside from Wayne County, the highest potential annual gross rental yields in 2023 among counties with a population of at least 1 million are in Cook County (Chicago), IL (11.5 percent); Cuyahoga County (Cleveland), OH (10.1 percent); Oakland County, MI (outside Detroit) (9.1 percent) and Palm Beach County (West Palm Beach), FL (8.5 percent).

Home Flipping Remains Up In 2022 But Gross Profits Fall. ATTOM released its year-end 2022 “U.S. Home Flipping Report,” which shows that 407,417 single-family homes and condos in the United States were flipped in 2022. That was up 14 percent from 357,666 in 2021, and up 58 percent from 2020, to the highest point since at least 2005. The report reveals that the number of homes flipped by investors last year represented 8.4 percent of all home sales, also the largest figure since at least 2005. The latest portion was up from 5.9 percent in 2021 and 5.8 percent in 2020. But even as quick buy-renovate-and-resell turnarounds by investors shot up, gross profit margins on flips in 2022 sank to their lowest level since 2008 following the second major drop in two years. Homes flipped in 2022 typically generated a gross profit of $67,900 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was down 3 percent from $70,000 in 2021 and translated into just a 26.9 percent return on investment compared to the original acquisition price. The latest nationwide ROI (before accounting for mortgage interest, property taxes, renovation expenses and other holding costs) was down from 32.6 percent in 2021 and from 41.9 percent in 2020. Investors saw their profit margins drop for the fifth time in the past six years as the median value of the homes they flipped rose more slowly than the median price they paid to purchase properties – 12 percent versus 17 percent. The decline in home-flipping profits in 2022 continued to cast a negative light on our niche of the U.S. housing market. Fixing and flipping is growing but also struggling to figure out how to profit from changing price trends. The latest drop-off came during a year when the nation’s decade-long home-price runup stalled, leading to the weakest annual gains in three years and even a decline in the second half of 2022. That happened as rising home-mortgage rates, consumer price inflation and other forces cut into what home seekers could afford, reducing demand and cutting into prices investors were able to get on resale. But, in truth, profits for home flippers began diminishing in 2017 even as the broader housing market was booming.

How Don Peebles Became One of the Wealthiest African-American Real Estate Developers. Don Peebles, the founder, chairman, and CEO of New York–based Peebles Corp., is one of the wealthiest African-American real estate developers in the United States, with Forbes estimating his net worth in excess of $700M. Roy Donahue Peebles Jr. was born in 1960 in Washington, D.C., to a 19-year-old mother. His parents divorced when he was five. Although his family struggled financially, his enterprising mother exposed him early on to real estate and politics. She became a real estate salesperson and broker as a way to make extra money to support the family when they were living in Detroit for a few years, and a young Peebles filed that away as a possibility to support himself in the future. “It taught me the most important lesson,” he says. “Setbacks are opportunities in disguise.” It also forced him out of a comfortable path in D.C. “I would have stayed just like many developers do, in the same place,” he says. “And my life would have been totally different.” He started developing in other cities, including Philadelphia, Boston, and Charlotte, North Carolina. Now he’s in Los Angeles for the biggest project of his career and the last one he’ll actively lead himself. “The nice thing about starting your real estate development career at 19 is that you can have lifetimes of success and still be a relative youngster,” he says. Peebles is starting a fund to invest in affordable housing to help address the crisis in cities like Los Angeles and San Francisco. The fund will invest in projects mostly in the $20M to $50M range. He’s setting a goal for the fund to do 60 deals, with 10 of those in California, and he’s encouraged by the reception he’s getting from an evolving society. But the quiet force and longtime D.C. power player is now stepping into a brighter spotlight with his largest project yet in a land where many come to make it big: our very own Los Angeles. Peebles, 59, recently visited the location of his project, Angels Landing in Downtown Los Angeles, set to debut in 2024. The $1.6B residential, hotel, and retail complex sits on a vacant parcel on Bunker Hill will feature an 80-story skyscraper, making it one of the tallest buildings in the Western United States. The plan is to build a vertical community to tie together one of the more disjointed areas of L.A.’s bustling core.

Mookie Betts Tricked-Out LA Compound Listed for Sale. It’s time for Dodger baseball, and Mookie Betts is already up to bat. In fact, Mookie is up to bat in the San Fernando Valley, where he’s praying for a home run-worthy deal. The Dodgers outfielder and all-around MLB superstar is requesting $10 million for his Encino mansion, which he bought in fall 2020 for $7.6 million from UCLA Bruins head coach Chip Kelly. Since then, Betts has added some very custom upgrades worthy of a six-time Gold Glove winner. The mansion was built in 2018 and contains 9 bedrooms (one for each Dodger starting position player), 10 bathrooms (baseball players go to the bathroom a lot), all within 9,410 square feet. The lot size is roughly half of one acre. Tucked securely behind gates and high hedges, the luxury property features a substantial motorcourt with space for multiple cars, and the home’s front door is also flanked by a pair of two-car garages. Inside, the two-story foyer and delicately curved staircase are guaranteed to impress guests, and there are hardwood floors throughout. The half-acre lot is perfectly flat and a private resort unto itself. Out back, AstroTurf putting greens are joined by a full outdoor kitchen and cabana; the zero edge swimming pool includes both an inset spa and sunken “conversation pit” of sorts, complete with a fire-pit and built-in banquette seating. Across a concrete patio from the pool stands a two-story guesthouse, complete with two more bedrooms and two full bathrooms. But perhaps the property’s most unusual feature is one recently installed by Betts himself. At the far rear of the lot, where a more traditional sports court once stood, a warehouse-like building hosts a gym and indoor basketball court branded with “MB” initials. Born and raised in Nashville, Betts is reportedly a distant cousin of Meghan Markle. The 30-year-old and wife Brianna Hammonds moved to Los Angeles in the summer 2020, when he signed a $365 million contract extension with the Dodgers.

Ellen And Portia Take Rare Loss on Montecito Fix & Flip. It doesn’t happen often, but even my favorite flippers, Ellen DeGeneres and Portia de Rossi, can make a real estate mistake now and again. After first listing their century-old cottage in Montecito’s affluent Hedgerows District last winter for $5.8 million, the house just sold for a discounted $5.1 million. Though that’s still a large sum of money by any stretch, it’s $300,000 less than the former talk show host and actress originally paid for the pre-Craftsman home last spring. But don’t worry about these two rehabbers. Over the years, the couple has famously reaped tens of millions in real estate profits. Just two months ago, for instance, they sold a historic Montecito hacienda (right next door to Oprah Winfrey’s “Promised Land” estate) to Bumble founder Whitney Wolfe for a cool $21 million, or $7 million more than what they paid two years ago. Last September, the pair also made out like bandits when they transferred a Moorish-influenced villa in the same Santa Barbara County city to music manager Scooter Braun for $36 million, or a whopping $15 million over what they doled out for it just six months before. As for their most recent sale, the “cottage” was built in the early 1900s and rests on nearly a quarter-acre of land hidden away behind high hedges. Inside the U-shaped structure are two bedrooms and three baths in a little more than 1,900 square feet of single-level living space, all of it boasting hardwood floors, vaulted ceilings, wainscoted walls, decorative columns and original built-ins. There’s still more than enough chances for DeGeneres and de Rossi to re-board the house-flipping gravy train. In addition to the aforementioned properties, they still maintain several residences ripe for resale, including an oceanfront compound in Carpinteria, a Bel Air estate, and two petite Montecito cottages.

Queen Mary Reopens for Public Tours on April 1. Long Beach’s Queen Mary reopened for public tours on April 1 for the first time in three years, the ship’s operators announced. “It is so exciting to finally welcome visitors back onboard this historic landmark,” Long Beach Mayor Rex Richardson said in the Monday, March 27, announcement. “We have worked tirelessly to protect the ship’s safety, preserve its rich history and bring it back to life.” “These tours are just the beginning of a larger phased reopening plan,” Richardson added, “and we look forward to sharing more details of the ship in the coming months.” Long Beach city officials and the Queen Mary’s new operators (Evolution Hospitality, which took over the ship’s day-to-day management last June) have been working to revitalize the vessel after it fell into massive disrepair under its previous operator, Urban Commons. The Queen Mary initially closed to the public because of the coronavirus pandemic in 2020. A 2021 city audit found that Urban Commons had not completed $23 million dollars worth of repairs, which the city had funded. As a consequence, Urban Commons forfeited its 66-year lease on the ship, bringing the Queen Mary back under city control for the first time in nearly 40 years. After the City Council approved the new management contract with Evolution last year, both found that several critical repairs needed to be completed before the Queen Mary could safely reopen to the public. Those included replacing the ship’s boilers, elevators and restrooms, repairing the plumbing, and upgrading parking. Those fixes have been underway since last year. Members of the public can also book an overnight stay at the ship’s hotel, though rooms won’t be available until May 12, according to the city’s announcement. Three tours — including the Glory Days Historical Tour, the Haunted Encounters Tour and the Steam & Steel Tour — are available from 11 a.m. to 6 p.m. daily. 

April 13th Meeting & Vendors Expo Cancelled. In celebration of Ramadan, the Iman Cultural Center is NOT available to us on Thursday night, April 13, 2023. Accordingly, rather than the confusion of transferring to another venue at the last minute, we are going to simply postpone our April 13th meeting and vendors expo. Cliff Gager has been re-scheduled for September 14, 2023. Sorry for any inconvenience this may cause. Our monthly meeting and vendors expo will return on Thursday night, May 11, 2023, with a special presentation by the Women's Real Estate Network ("WREN"), including a panel of four successful women investors. Last year this was our largest attended event of the year. So you don't want to miss it!

Vendors Expo Returns! Attend our super-duper world-famous "Real Estate Vendors Expo." Thursday night, May 11, 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. And stick around for our featured speaker. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission. Please RSVP at www.LARealEstateInvestors.com. 

Women Making Moves (& Money) in Real Estate.  Join us on Thursday night, May 11, 2022, when we have a very special panel on women investors. Our moderator will be Deborah Razo, President of the Women’s Real Estate Network (“WREN”). Deborah is an all-star investor, including fixing and flipping houses, residential construction, and multi-residential properties in the U.S. and Puerto Rico. The panel will feature Cindy Coleman discussing note investing, Angela Sillman discussing short-term rentals, and Jen Maldonado discussing raising capital for your projects. The women will be discussing how they started investing and challenges they confronted along the way. If you’re a woman investor, DO NOT miss this presentation! (If you’re a man, you can attend, but only at your own risk!) Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (Culver City adjacent). FREE Admission. Metered street parking. 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.   

“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 continue to keep a close eye on the banking sector to see if troubles spread to other institutions. We will also monitor to see if Fed officials elaborate on their plans for future monetary policy. The Institute for Supply Management’s National Manufacturing Sector Index will come out today and the ISM National Services Sector Index will be released 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 some of the most highly anticipated economic data of the month. In addition,

Weekly Changes:

10-year Treasuries:             Rose  015 bps

Dow Jones average:           Rose  800 points

NASDAQ:                            Rose  300 points

Calendar:

Monday (4/3):                       ISM Manufacturing Index

Wednesday (4/5):                 ISM Services

Friday (4/7):                          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