Monday Morning Quarterback

(Monday, April 24, 2023)

Did you know Japan has millions of empty houses for sale. Have you ever considered buying rental in Japan? I mention this because there are millions of inexpensive vacant houses (known as “akiya,” Japanese for “empty house”) throughout Japan’s countryside. They range in price from $25,000 to only $100,000. And the supply is growing. The most recent government data, from the 2020 Housing and Land survey, reported about 8.5 million akiya across the country (roughly 14% of the country’s housing stock). But observers say there are many more today. For example, the Nomura Research Institute puts the number closer to 11 million, and predicts that akiya could exceed 30% of all houses in Japan by 2033. But why? It seems Japanese take depreciation quite literary! In other words, houses in Japan decrease in value over time until they are worthless (the cultural legacy of post-World War II construction and shifting building codes), with only the land retaining value. So owners feel little incentive to maintain an aging house, give up, and move away. Worse, akiya are increasingly seen not only as a threat to suburban and rural markets but detrimental to the emotional health of the country, sparking family disputes over inherited properties. Municipalities across Japan compiling listings of vacant houses for sale or rent, known as “akiya banks.” Some municipalities have even partnered with private-sector companies like At Home, which currently lists akiya in 658 of Japan’s 1,741 municipalities. As expected, several firms have sprung up to capitalize on the akiya glut, matching vacant homes with curious international buyers. As Japan’s population shrinks and more properties go unclaimed, an emerging segment of international buyers, feeling less tethered to overcrowded cities, are seeking out rural architecture in need of some love. Besides, these vacant houses are cheaper than cramped city dwellings and often come with lots of land. And now there are industrious young buyers opening Airbnb rentals in erstwhile akiya and offering them for short-term lease. So pack your bags! In other real estate news, let’s get under the hood…

Builder Confidence Rises For Fourth Consecutive Month. The National Association of Home Builders (NAHB) monthly “Confidence Index” rose one point to 45 in April, the trade group said last week. This is the fourth month in a row that sentiment has improved among builders. The March reading of 45 was the strongest since September 2022. A year ago, the index stood at 77. Builders are optimistic about the future as buyers contend with a low number of homes on the market. Home sellers are feeling trapped and unwilling to give up their ultralow mortgage rates. But builders are not feeling the same constraints, giving them room to offer various enticements to lure eager buyers. The three gauges that underpin the overall Builder-Confidence Index were mixed.

    · The gauge that marks “Current Sales Conditions” rose by 2 points. 

    · The gauge that assesses “Sales Expectations” rose by 3 points.

    · The gauge that measures “Traffic of Prospective Buyers” unchanged.

Builders are cutting home prices to attract buyers as one of their tactics, the NAHB says, with 30% saying they dropped prices in April. That was down from 31% in March. The average size of the price reduction was 6% in April. It’s home builders’ moment to shine — and they’re very happy about it. Home sellers are feeling stuck due to their own ultralow mortgage rates and a market that may force them to cut prices. But rates are also inching downward, making mortgages less expensive for buyers and boosting demand. As one of the few players to add to the housing stock, builders are feeling optimistic about their business. “Currently, one-third of the housing inventory is new construction, compared to the historical norms of a little more than 10%,” Robert Dietz, chief economist at the NAHB, said in a statement.

Housing Starts Decline in March. Construction of new homes fell 0.8% in March to a rate of 1.42 million houses due to slower work on apartment buildings, leaving prospective buyers with limited options. (That’s the number of homes that would be built over an entire year if construction took place at the same rate in every month as it did in March.) Offsetting the decline in apartment projects, construction of single-family homes rose 2.7%. The small rebound in new construction this year is supported by strong demand from buyers, who are running out of options on the resale market. Building permits, a key indicator of the pace of future construction, fell a sharper 8.8% to a 1.41 million rate, the government said Tuesday. The decline was larger than expected. The pace on construction on apartments fell by 6.7%. Permits for single-family homes rose 4.1% in March, while permits for buildings with at least five units fell by 24.3%. Overall, housing starts are down year-over-year. The annual rate of total housing starts fell from 17.2% from the previous year. The small dip in housing starts is mostly due to a slowdown in apartment building, which had been booming over the last few months. After a red-hot building streak, apartment builders are cooling off as new units hit the market. Rent inflation is also slowing, signaling that consumers have more options on the supply side. On the single-family-home side, buyers are faced with a shortage of previously owned homes and are turning to new builds. Economists expect a softer U.S. economy to start affecting home builders. Worse, economists also expect mortgage rates to rise in the coming months, compounding the impact of tighter lending standards as a barrier to homebuilding ahead.

Existing-Home Prices Fall Nearly 1% in March.  Existing-home sales in the U.S. fell 2.4% in March, as buyers contended with higher mortgage rates and a lack of new listings. Sales of previously owned homes fell to an annualized rate of 4.44 million in March, the National Association of Realtors said Thursday. (That’s the number of homes that would be sold over an entire year if sales took place at the same rate in every month as they did in March. The numbers are seasonally adjusted.) The drop in sales reverses a sudden jump in February, when home sales rose to a revised pace of 4.55 million. But compared with March 2022, home sales are down 22%. The median price for an existing home fell by 0.9% from last March, dropping to $375,700 this year. The drop is the largest since January 2012, when home prices fell 2% year-over-year. It’s also the second month in a row that home prices fell. Home prices peaked at 25.2% in May 2021. The number of homes on the market rose by 1% in March (from the previous month) to 980,000 units. Expressed in terms of the months-supply metric, there was a 2.6-month supply of homes for sale in March, the same as the previous month. (Before the pandemic, a four- or five-month supply was the norm.) Homes remained on the market for 29 days on average in March, down from 34 days in February. The share of individual investors (or second-home buyers) was 17%. What is really happening? It appears buyers are watching mortgage rates, and with a low number of homes on the market, they’re being cautious and pulling back when the market isn’t going their way. Rates rose in the latest week, adding hundreds of dollars in extra costs for potential borrowers, and mortgage demand is down. The drop likely signals further weakness in home sales.

Clarence Thomas Sold Property to Billionaire Crow. As investors, we are all busy buying and selling real estate. Even Supreme Court Justice Clarence Thomas. But why would Thomas sell a house in which his mother lives? And why would he sell it to his friend, real estate mogul, Harlan Crow? And why would Crow buy a house for more than its worth? And why didn’t Thomas disclose the sale? So many questions, so few answers. To start, Harlan Crow, the son of Dallas real estate mogul Trammell Crow, bought the home in Savannah, Georgia, from Thomas back in 2014, ProPublica reports. News of the $133,363 sale comes on the heels of a report that Thomas accepted all-expenses paid vacations with Crow each year for decades without disclosing the gifts. After purchasing the home where Thomas’ mother still lives, Crow poured tens of thousands of dollars into renovations, adding a carport and repairing its roof and gates. A Crow Holdings company took over the home’s property tax payments (which Thomas and his wife had been paying). Crow also purchased several neighboring lots, including the house immediately next door, which had been known for hosting noisy parties. Thomas’ mother still lives in the home, and Crow didn’t respond when ProPublica asked if he charges her rent. Crow, a prolific collector of historical artifacts, said he plans to turn the home into a public museum. Fittingly, he bought the house through an entity called Savannah Historic Developments LLC. Federal disclosure law requires justices to disclose real estate sales over $1,000. While Thomas’ financial disclosure that year included a life insurance policy and a medallion he received from Yale, he left the home sale off his annual report. The justice inherited his stake in the house after his grandfather’s death in 1983, and his signature appears on the deed transfer document. Trammell Crow Company is a commercial development company that is separate from Crow Holdings and its subsidiaries. Crow took over Crow Holdings in the late 1980s and used his family’s substantial wealth to evolve the firm into an umbrella investment firm that included Trammell Crow Residential, Crow Holdings Capital, Crow Holdings Industrial and Crow Holdings Office.

Foreclosure Activity Continues Climbing In Q1 2023. ATTOM real estate database released its Q1 2023 “U.S. Foreclosure Market Report,” which shows a total of 95,712 U.S. properties with a foreclosure filing during the first quarter of 2023, up 6 percent from the previous quarter and up 22 percent from a year ago. This is the 23^rd consecutive month with a year-over-year increase in foreclosure activity. States that had the greatest number of foreclosures starts in Q1 2023 include the usual culprits; California (6,867 foreclosure starts); Texas (6,764 foreclosure starts); Florida (5,724 foreclosure starts); New York (4,345 foreclosure starts); and Illinois (4,006 foreclosure starts). Major metros with a population of 200,000 or more that had the greatest number of foreclosures starts in Q1 2023 include New York, New York (4,674 foreclosure starts); Chicago, Illinois (3,549 foreclosure starts); our own Los Angeles, California (2,210 foreclosure starts); Houston, Texas (2,120 foreclosure starts); and Philadelphia, Pennsylvania (1,985 foreclosure starts). Among 223 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in Q1 2023 were Fayetteville, North Carolina (one in every 526 housing units); Cleveland, Ohio (one in 582); Atlantic City, New Jersey (one in 661); Columbia, South Carolina (one in 671); and Bakersfield, California (one in 688). Properties foreclosed in Q1 2023 had been in the foreclosure process an average of 950 days, the highest number of average days to foreclose since 2018. This is up 12 percent from the previous quarter and up 4 percent from Q1 2022. States with the shortest average foreclosure timelines for homes foreclosed in Q1 2023 were Wyoming (111 days); Minnesota (141 days); Montana (143 days); Texas (146 days); and Arkansas (157 days).

Holy Dirt Turns Southwest Town Into Spiritual Destination. Over 300,000 people every year make the pilgrimage to the Roman Catholic shrine known as the Santuario de Chimayo, in Chamayo, New Mexico. They are looking for a miracle, spiritual renewal or forgiveness. The shrine has become the most significant Catholic pilgrimage site in the United States. People come all year, in all ways. Some walk 90 miles from Albuquerque or 27 miles from Santa Fe, camping along the roads or behind churches. (Pain is part of the pilgrimage.) Over the years, Chimayo has morphed from an unincorporated collection of close-knit neighborhoods into a major tourist attraction and a destination for spiritual seekers. In the days leading up to Easter, over 40,000 pilgrims came through the Santuario, a small church that forms the centerpiece of the shrine. They pray, visit various chapels and enter a small room where crutches hang from the walls (alongside written testimonials of healings). A few steps away is a tiny chamber known as “el pocito,” or little well, pilgrims shovel “holy dirt” from a small hole into baggies, baby food jars and assorted vials. They believe the holy dirt works miracles through the power of faith. People relate stories how the dirt has cured skin diseases, brain cancer and infertility. The Santuario was built in 1810 by Don Bernardo Abeyta, a member of the Penitente Brothers, a Catholic lay order once known for extreme acts of penance including self-flagellation. In 1813, a shrine was constructed and dedicated to Christ of Esquipulas, a pilgrimage site in Guatemala said to have healing clay. The early Native American inhabitants of the area, a Puebloan people who spoke the Tewa language, also believed the dirt was medicinal. The mystery of the curative dirt proves irresistible to pilgrims who slowly trickle in. The Good Friday pilgrimage, the largest of all, began after World War II. Last week, as Good Friday approached, the Santuario sprang to life. The church pews were full. As morning broke on Good Friday, pilgrims flooded the streets leading into Chimayo. Elderly women wearing black headscarves mixed with excited children, families and leather-clad bikers all making their way toward the shrine. A few carried crosses bearing the photos of deceased loved ones or those in need of prayer. Vendors hawked roasted corn and peeled mangoes drizzled with red chili. A procession carrying life-sized wooden statues of a bound and bleeding Jesus followed by the Virgin Mary moved down the road, parting the sea of believers.

Air National Guardsman Arrested After Agreeing to Murder-for-Hire. I already have my first nominee for “Nincompoop of the Year” Award for 2023. And it’s own April! His name is Josiah Ernesto Garcia. Garcia, a Tennessee Air National Guardsman, was arrested last week. Let me explain why. Apparently, Garcia “needed extra money to support his family” and “began searching online for contract mercenary jobs, ” according to a press release from the US Attorney’s Office for the Middle District of Tennessee. On February 16, Garcia discovered the website, www.RentaHitman.com. Garcia filed an employment inquiry form indicating he was interested in “obtaining employment as a hitman.” He noted his “military experience and rifle expertise” on the form while also requesting an in-depth job description. The hopeful hitman remained in contact with the website over the next several days, providing his resume, Tennessee driver’s license and headshot. On his resume, Garcia bragged about being an expert marksman “awarded for not missing a single bullseye on all of the targets and as a shooting expert with 2 (or more) weapons.” “I’m looking for a job, that pays well, related to my military experience (Shooting and Killing the marked target) so I can support my kid on the way,” Garcia said through a follow-up email. Feeling antsy for work, Garcia sent two follow-ups between February 23 and March 13 hoping to hear back about potential assignments. Just one minor tiny little problem: the website was not real. It was a parody! RentaHitman.com was created in 2005 by four friends attempting to create a cyber security company, as it was a play on words with “Rent as in hire us, Hit as in network traffic, and men, because there were four of us,” website owner Robert Innes told a Tennessee newspaper. While the company was failing to get off the ground, it began receiving “many inquiries about murder-for-hire services,” which led Innes to turn it into a parody site that included false testimonies from fictional satisfied customers, a Service Request Form and even a careers tab where people, like Garcia can “apply” to be a hitman. Receiving Garcia’s application, Innes alerted the FBI. An undercover FBI agent posed as an agent for the website and contacted Garcia for a phone interview, which led to two meetings where Garcia said he was “looking into [killing people for money].” On April 12, Garcia meet with the undercover agent to discuss a potential “target” that would pay $5,000 for “taking out” the client’s abusive husband. Garcia was given the first half of the payout along with images of the fake target. Upon receiving the payment, Garcia was arrested. If convicted, Garcia faces up to 10 years in prison. What a nincompoop!

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, Courtney Jones discussing wholesaling and creative financing techniques, 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 these talented women! (If you’re a man, you can attend, but 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.

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 after for our WREN panel discussion. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission. (Parking: see below.) Please RSVP at www.LARealEstateInvestors.com.

Parking (Iman Cultural Center). 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 block walk to the Iman.

LARealEstateInvestors.com Podcast. We are very excited about our weekly 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. 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, Zoom, and Google.

This Week. Investors will continue to keep a close eye on the banking sector for signs that troubles are not spreading to other institutions. They will also watch to see if Fed officials elaborate on their plans for future monetary policy. For economic reports, New Home Sales will be released tomorrow by the Census Bureau. First quarter Gross Domestic Product, the broadest measure of economic activity, will come out on Thursday from the Bureau of Economic Analysis. The Bureau will also release its Personal Income and the Core PCE Price Index, the inflation indicator favored by the Fed, on Friday.

Weekly Changes:

10-year Treasuries:            Rose  050 bps

Dow Jones average:           Fell    200 points

NASDAQ:                             Fell    100 points

Calendar:

Tuesday (4/25):                    New Homes Sales

Thursday (4/27):                  Gross Domestic Product

Friday (4/28):                       Core PCE

For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

310-409-8310