Monday Morning Quarterback

(Monday, July 17, 2023)

The land is still moving! It started last week when residents on Peartree Lane in Rancho Palos Verdes were suddenly given only 20 minutes to evacuate, then 17 homes (and counting) were red-tagged, as the land beneath the picturesque neighborhood suddenly shifted last week. By Monday morning, multiple homes had slid down the hillside that borders the southeast side of the street, dipping below what was left of their driveways, some almost completely hidden from the road they previously lined. Garage doors were flattened, roofs caved in, massive crevices exposed beams and pipes. The homes were red-tagged after firefighters and investigators found them visibly leaning because of massive movement on the hillside. The community is on the northern side of the Palos Verdes Peninsula, facing Torrance. These homes are continuing their decline down the hillside, reports the Los Angeles County Fire Department. “Things are still shifting there,” Fire Dept reports. “The hillside is still moving. We don’t know the extent of that movement, but geographical engineers further assessing the situation.”  At a Sunday news conference at the site, L.A. County Supervisor Janice Hahn said officials “believe many of these homes will fall into the canyon sooner than later.” All the evacuated residents have found somewhere to relocate, most with relatives, and at least two residents who are out of the country haven’t seen their home yet. The Los Angeles County assessor will meet homeowners Monday afternoon to help them apply for a property tax waiver. But probably no insurance recoveries since most homeowner policies do not cover landslides. The 17 evacuated homes have had gas, water and power shut off, according to the Los Angeles County Fire Department, and 16 additional homes have had their gas shut off to ensure the shifting homes don’t cause a leak. Crews from Southern California Gas Co. and Southern California Edison remain on the scene. Officials said a visible fissure is winding its way between the homes that are affected. In other real estate news, let’s get down in the weeds…

State of the Nation’s Housing Report. A new Harvard study confirms what most Californians already know: housing is getting increasingly unaffordable in the Golden State, despite more people leaving. In their 2023 “State of the Nation’s Housing” report, researchers with Harvard University’s Joint Center for Housing Studies note that the market for both for-sale and rental houses has cooled, though homeowners and renters face costs above pre-pandemic levels. Home sales and construction are down, slowing price appreciation. The rise in rents has eased, and more apartments are vacant. The Golden State has been an especially tough place to find a lower-cost apartment. California “lost an additional 633,000 units (renting between $600 and $1,000) and an astounding 677,000 units (renting for $1,000-1,399) — the largest decline of any state,” Sophia Wedeen, a research analyst at the Harvard Joint Center for Housing Studies says. Nationwide, California has experienced “the most notable growth” in homelessness since 2020, the report states. And yet, incredibly, an increasing share of people are leaving California. Net moves out of the state jumped from 208,000 in 2019 to 340,000 in 2022, according to researchers. A recent poll found that 55% of those surveyed expressing concerns about the costs of healthcare and housing. So what can we do about it? Like many of our problems, the solution is firmly in the easier-said-than-done category: Build more affordable housing — a lot more, the report authors wrote. One complicating factor: the rising risks of climate-related disasters. That’s especially troubling in California, which contains a high concentration of high-risk counties. That was one reason State Farm and All-State decided to no longer sell new home insurance policies in California. “California’s housing crisis is a half century in the making,” officials wrote in the statewide housing plan. “Decades of underproduction underscored by exclusionary policies have left housing supply far behind need and costs soaring.”

Renters Dominate California (But Are Struggling to Survive). According to that same Harvard’s study, “The affordable housing crisis worsened over the past few years as the COVID-19 pandemic, unusually low housing vacancy rates, skyrocketing rental prices and record-breaking inflation exacerbated the financial insecurity of low-income renters,” the report states. California is the most renter-heavy state in the U.S., with 45% of housing units occupied by renters. Within the state, Los Angeles and San Francisco counties, where the rates are 62% and 54%, respectively, stand out. Apartment owners are also speaking out about rents. “We have been screaming for years and years that the lack of supply and construction of new housing is leading to this increase,” said Fred Sutton, a spokesperson for the California Apartment Assn., a group representing the rental housing industry. “The costs of operating housing have skyrocketed over the last several years,” he said, noting that rent control, inflation and operating costs are factors in adjusting rents. In all, except for three of California’s 58 counties, the mean wage for renters was not enough to afford a two-bedroom rental. The three counties where wages were high enough were all high-rent locales in the Bay Area: San Francisco, Santa Clara and San Mateo. The report states that “renters are facing the effects of a long-standing trend in which rents have risen faster than wages.” Between 2001 and 2021, according to the report, median rents increased 17.9%, while median household income went up 3.2%. In Arkansas, the nation’s cheapest state for renters, a renter can afford a two-bedroom unit with an hourly income of $16.27. That’s about one-third of the cost in California.

Which California Counties Are The Most Expensive For Renters. The “Out of Reach” Report reveals in stark terms the financial challenges facing renters, particularly in California. A California renter needs to make $42.25 an hour to afford a two-bedroom rental unit, the highest figure in the nation, according to the new study. The mean hourly wage for California renters, by contrast, is only $33.67. The eight most expensive counties for renters in America are all in California, including Santa Barbara and Orange counties in Southern California, according to the report from the National Low Income Housing Coalition. In the four most expensive counties — Santa Cruz, Marin, San Francisco and San Mateo — a renter needs to make more than $60 an hour to afford a two-bedroom unit. Santa Cruz County, where the mean renter income was estimated at $22.39 an hour, has the biggest discrepancy between actual income and the income required to afford a two-bedroom. The mean renter only made 34% of the income necessary to afford such a unit, according to the study.

LA Aims To Electrify All Buildings By 2050. Bottom of FormLast year, Los Angeles became the nation’s largest city to require all new buildings to be all-electric. But when it comes to unhooking cities from fossil fuels, retrofitting existing buildings to be all-electric is the bigger challenge — and has implications for a city of mostly renters. Though other major cities, including New York and Boston, are moving forward with similar policies, such a large-scale effort hasn’t yet been completed. But why electrify buildings? Because electrifying buildings (otherwise called “building decarbonization”), is one of the primary ways cities can reduce their carbon footprint, as long as those buildings are hooked up to a cleaner electric grid (which is slowly, but surely, happening here in California). From their materials to gas hookups, the million existing buildings in L.A. make up more than 40% of the city’s greenhouse gas emissions. Fortunately, California is working to generate all of the electricity that powers homes and businesses through carbon-free sources such as wind and solar instead of fossil fuels such as coal, oil and gas. Then when we electrify the stuff we use every day (such as stoves, furnaces and cars) we can significantly reduce emissions, because we’ll be plugging into a cleaner power grid. But there’s challenges ahead for property owners who could be required to start work as soon as next year. While constructing electric buildings from scratch is actually on par with (or cheaper) than traditional construction, retrofitting existing buildings is a lot more expensive. Last year, L.A.'s city council directed the Department of Buildings and Safety, which is in charge of overseeing this policy, to report on the plan and its impact on low-income tenants.

Consumer Sentiment Soars in July. The University of Michigan’s gauge of consumer sentiment rose to a preliminary July reading of 72.6 from a June reading of 64.4. It is the largest gain since December 2005. However, Americans’ expectations for overall inflation over the next year rose to 3.4% in July from 3.3% in the prior month. Expectations for inflation over the next 5 years ticked up to 3.1% from 3% in June. According to the UMich report, a gauge of consumers’ views on current conditions jumped to 77.5 in July from 69 in the prior month, while a barometer of their expectations rose to 69.4 from 61.5. But why, you ask? Well, sentiment is improving as gasoline prices have held steady this summer. Low unemployment is also playing a role. “The good news is that sentiment has roughly retraced half of its fall from pre-pandemic levels. For most Americans, a modest gain in income is expected. Still, durable goods buying conditions remain far off their recent levels. The rise in confidence seems restrained, and clouds about the forecasted economic downturn which continues to linger,” said Scott Murray, economist at Nationwide.

‘Yellowstone’ Couple Wrangles Up Topanga Equestrian Compound. As it turns out, when actors Ryan Bingham and Hassie Harrison kiss, they’re not acting! On the Paramount Network’s contemporary Western series, actor/musician Bingham, 42, portrays the role of Walker — an ex-con-turned ranch hand. The Grammy-winning singer/songwriter has been on the show since season one, but became a series regular in season four. Harrison, 33, made her debut in season three as trouble-making barrel racer Laramie. This past April, Harrison and Bingham finally confirmed their relationship with an Instagram post showing the “Yellowstone” costars kissing in matching camo outfits in front of a fire. More recently, the couple seems to have taken their romance to the next level, having jointly purchased a $5 million equestrian spread, which was built in 1999. The sprawling property lies in the wilderness of Topanga Canyon. Securely tucked away behind a private gated driveway, amid an almost 10-acre parcel of pasture land, the estate features a main stucco and terracotta-roof structure with four bedrooms and a matching number of baths in a little more than 4,300 square feet of two-level living space boasting three fireplaces, and Brazilian cherry and travertine floors throughout. Outdoors, the grounds are laced with fruit and olive trees, and host a pool and spa flanked by a loggia. The equestrian facilities include a three-stall barn with a tack and feed room, as well as a trio of corrals, riding arena and caretaker’s quarters with a small apartment; and three-car garage. The seller, Lori Hyland, is the widow of the late prominent real estate broker Jeff Hyland and the granddaughter of the late Caroline Rose Hunt (a billionaire Texas oil heiress who was once the richest woman in America and owner of the Bel-Air Hotel). The Hylands acquired the place for $3 million back in 2018.

Inside Elton John’s Home in Trousdale Estates. Musician Elton John and his partner, film producer David Furnish, wanted to create a comfortable house in Beverly Hills for their expanding family. What the two men envisioned when they began looking for a new home was a manageably sized house from the 1960s, a period that epitomizes their shared ideal of California indoor-outdoor living. They wanted a place where their children could move around freely and have access to “a front and back garden and some fresh air,” John says. Those were qualities their previous L.A. abode (a sleek jewel box perched on the 20th floor of the Sierra Towers) simply did not offer. The search didn’t take long. On the first day of hunting, Furnish found the nearly 5,000 square-foot, single-story structure, built in 1966 in Trousdale Estates, a neighborhood famous for its midcentury architecture. “It’s quintessential L.A.,” Furnish says. “I remember walking to the front door and saying, ‘It’s perfect.’” Since the Trousdale property had recently received a thorough overhaul, an initial walk-through convinced the couple that no major structural changes were needed. John notes that the floor plan, distinguished by open living and dining areas that flow naturally into a large eat-in kitchen, “gives the couple wonderful opportunities to entertain in the way they want to, yet also have really intimate family experiences.” As with all of the couple’s homes (they also own homes in Atlanta; London; Windsor, England; Nice, France; and Venice, Italy) “everything is centered around the art,” John says. John and Furnish plan to spend a lot of time on the West Coast—Furnish producing a sequel to the hit animated film Gnomeo & Juliet and John working on his next album, in addition to hosting the Elton John AIDS Foundation’s Academy Awards viewing party, an annual event that has raised millions for the fight against HIV/AIDS. Being in L.A. also keeps John close to Las Vegas, where he’ll be performing at Caesars Palace in 2024. The musician happily acknowledges that the Trousdale home, despite its family focus, has a trace of the ’70s decadence of the couple’s previous L.A. abode. “I’d have to say the house is still a bit Boogie Nights,” he says. “It’s just much lighter and brighter.”

Foreclosure Forum. How to find and buy foreclosure properties. Saturday, August 5, 2023, 9:00 am to 5:00 pm. Iman Cultural Center, 3376 Motor Avenue, Los Angeles, CA 90034. Iman Cultural Center, 3376 Motor Avenue, L.A., CA 90034. The cost of the Forum is $149.00 per person if paid before July 29th. After July 29, the price increases to $1 million. (Gold Members and returning Forum students can attend for FREE.) So don't wait! Register now: www.LARealEstateInvestors.com.

Vendors Expo Returns! Our carbon-neutral, bio-degradable, gluten-free, super-duper "Vendors Expo" returns on Thursday night, August 10, 2023. 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 a successful investor. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034 (Culver City adjacent). FREE Admission. Please RSVP at www.LARealEstateInvestors.com. 

August General Meeting. Our monthly general meeting will be held on Thursday night, August 10, 2023, 6:30 to 9:30 pm. Our very special guest will be Seth Phillips, California’s leading authority on “Accessory Dwelling Units” (“ADU”) and the new laws regarding 2-3-4 units on a single-family zoned lot. If you want to build more units and increase your rental income, you must attend Seth’s presentation. Our meeting will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles 90034 (Culver City adjacent). FREE Admission. Please RSVP at www.LARealEstateInvestors.com.  

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 watch for Fed officials to elaborate on their plans for future monetary policy. There is a likely to be a rate increase in the coming July Fed meeting. For economic reports, Retail Sales will come out tomorrow from the Census Bureau. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of our economy. It is also an important week for housing news. Also on Tuesday, the National Association of Home Builders will release its Housing Market Index for July. Housing Starts will be released on Wednesday by the Census Bureau and Existing Home Sales will be released on Thursday by the National Association of Realtors. 

Weekly Changes:

10-year Treasuries:            Fell    025 bps

Dow Jones Average:          Rose  800 points

NASDAQ:                           Rose  500 points

Calendar:

Tuesday (7/18):                   Retail Sales

Wednesday (7/19):              Housing Starts

Thursday (7/20):                  Existing Homes Sales

For further information, comments, and questions,

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

310-409-8310