Monday Morning Quarterback

(Monday, November 6, 2023)

Last week, a Missouri court found the National Association of Realtors and two real-estate brokerages guilty of conspiring to inflate real-estate commissions. A decision that will likely rock the U.S. housing market and undoubtedly alter the way Realtors conduct business. The NAR, the largest industry group in the U.S., as well as brokerages HomeServices of America and Keller Williams, were found guilty by a Kansas City jury of colluding to maintain artificially high commission rates. The verdict is the first of two antitrust lawsuits that aim to address the longstanding practice of commissions being paid by sellers (not buyers), and aims to reform the way agents are paid. The verdict was part of the “Sitzer/Burnett” case, which was first filed in May 2019. The trial began on Oct. 16 and concluded after only two weeks of testimony. As you know, when a home is sold, custom in the industry is that the listing agent and the buying agent each get a 3% commission, both of which are paid for by the seller (euphemistically called “cooperative compensation”). But in this case, the Plaintiffs argued that sellers should only have to pay the listing agents, and that buyers should be responsible for paying the buyers’ agents. Second, they argued that commissions should not be preset at 3%, but rather open to negotiation. In response, the defendants argued that this would create an undue burden on buyers. Apparently the jury disagreed! As a result, the defendants have been ordered to pay damages of nearly $1.8 billion, according to the Wall Street Journal. Worse, the court could increase the damages under antitrust rules, and result in them paying roughly $5.36 billion to the class of plaintiffs. But the judge has not issued a final ruling on the case yet. Both parties could also settle, which would stem any “chaos” that will likely follow from copycat lawsuits. For example, minutes after the verdict, the attorney representing the plaintiffs filed a new suit against NAR, Compass, Douglas Elliman, ExP, Redfin, Weichert Realtors, United Real Estate and Howard Hanna Real Estate Services, claiming that they had also committed a conspiracy to control commissions. “This matter is not close to being final as we will appeal the jury’s verdict,” an NAR spokesperson assured the press. An appeal will likely focus on the Court NOT allowing the jury to hear crucial evidence that cooperative compensation is permitted under Missouri law. Regardless, this archaic custom is inevitably changing, so be ready for it.  Meanwhile, in other real estate investor news, let’s get down into the weeds…

Mortgage Rates Rise For Seventh Straight Week. The 30-year fixed-rate mortgage averaged 7.79% last week, according to data released by Freddie Mac last Thursday. It’s up 16 basis points from the previous week (one basis point is equal to one hundredth of a percentage point). Rates continue to be at the highest level since November 2000. A year ago, the 30-year was averaging at 7.08%. The average rate on the 15-year mortgage is 7.03%, up from 6.92% last week. The 15-year was at 6.36% 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. “Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many, and the only way to address it is lower rates and greater inventory,” Freddie Mac reports. Neither of which, by the way, are on the horizon. 

Top 10 ZIPS with Highest Foreclosure Rates in Q3 2023. According to ATTOM’s newly released Q3 and September “2023 U.S. Foreclosure Market Report,” there were a total of 124,539 U.S. properties with foreclosure filings in the third quarter. That figure was up 34 percent from a year ago! ATTOM’s latest foreclosure analysis reports that nationwide one in every 1,121 properties had a foreclosure filing in Q3 2023. The report noted that states with the highest foreclosure rates in Q3 2023 were New Jersey (one in every 595 housing units with a foreclosure filing); South Carolina (one in every 730); Delaware (one in every 739); Nevada (one in every 763); and Maryland (one in every 780). The report also noted that among 223 metro areas analyzed in the report, those with the highest foreclosure rates in Q3 2023 were Houston, Texas (one in every 371 housing units with a foreclosure filing); Atlantic City, New Jersey (one in every 453); Cleveland, Ohio (one in every 459); Bakersfield, California (one in every 465); and Columbia, South Carolina (one in every 503). Among those larger zip codes with 1,000 or more housing units and 10 or more foreclosure filings in Q3 2023, those with the worst foreclosure rates include: 77327 – Cleveland, Texas (on in every 2); 33946 – Placida, Florida (one in every 9); 95454 – Laytonville, California (one in every 46); 34602 – Brooksville, Florida (one in every 54); 95542 – Garberville, California (one in every 60); 12547 – Milton, New York (one in every 71); 95684 – Somerset, California (one in every 71); 12154 – Schaghticoke, New York (one in every 73); 95589 – Whitethorn, California (one in every 82); and 12733 – Fallsburg, New York (one in every 85). Also according to ATTOM’s latest foreclosure report, there were a total of 37,679 U.S. properties with foreclosure filings in September 2023. That figure was up 18 percent from September 2022.

Californians Are Fleeing Amid Sky-High Housing Costs. California saw a big net population loss last year from people moving to other states. Over 818,000 people left California between 2021 and 2022, while just 475,800 moved in, according to the Census Bureau. Around 340,000 more people left California than moved there between 2021 and 2022, and many are flocking to Texas and Florida. The data was pulled from responses to the American Community Survey. Though this number is lower than the 410,000 net loss between 2020 and 2021, it was still much higher than any other year in the last two decades, most of which were below 200,000. Ultimately, the total population of California from 2021 to 2022 dropped from 39,143,000 to 39,029,000. Over 102,000 people left California for Texas during this period, many citing Texas' lower housing costs as reason for making the move. This was slightly below the 108,000 people who made the same move between 2020 and 2021. Meanwhile, only 42,000 Texas residents moved to California and had their heads examined. Though California's median household income is higher at $84,097, the median value of owner-occupied housing units is $573,200, nearly three times the price of Texas' homes. This has forced many California residents to spend a significant portion of their income on housing, cutting away at their savings. Another 74,100 left California for Arizona, in contrast to 27,400 Arizona residents who moved to California probably kicking and screaming. Many are likely moving to Arizona for the state's lower cost of living, lower taxes, and employment opportunities.

Inside The World’s Largest And Most Advanced Underground City. With all the recent news about the labyrinth of underground tunnels in the Gaza Strip, it should be noted that the most elaborate underground system of tunnels is in Turkey. Beneath the streets of Turkey, a network of tunnels once housed thousands of residents seeking refuge from invaders and religious persecution. In fact, the country is known for its underground cities—particularly the expansive Derinkuyu, which could accommodate over 20,000 people. Though not yet fully excavated, current records indicate the 11-floor settlement measures 2,000 square feet, with potentially over 5,000 square feet still unexplored. But as of this summer, archaeologists studying a site about 150 miles west of the ancient subterranean sanctuary believe they might have unearthed one of the largest and most advanced underground cities thus far. Amazingly, the network of subterranean rooms and corridors cover approximately 215,000 square feet, according to Turkish news outlet Anadolu Agency. Below what is now the Sarayonu district of Turkey’s Konya metropolitan area, a labyrinth of 30 chambers is outfitted with chimneys, storage areas, cellars, and wells. The multilevel network reportedly dates back to the eighth century. Hasan Uğuz, a Konya Museum archaeologist who is directing the excavation, says that the teams working on site were not expecting the settlement to cover so much ground. In addition to its many rooms and halls, one particularly wide passageway is being described as a “mean street.” The areas within the structure are likened to palaces for their comfortable nature and the high quality of life the network was able to support—far from the primitive caves one might imagine in discussions of the Gaza Strip tunnels. The refined character of the space earned it the name Sarayini (which means “palace” in Turkish).

Can’t Afford California Housing? Try Living In A Tiny Sleeping Pod. Amid California’s ongoing housing crisis, creative approaches abound. Whether in RVs, tiny homes, ADUs or other improvised forms of shelter, Californians continue to push the boundaries of traditional housing in search of affordability. Enter the pod. Yes, a pod! Though tiny sleeping spaces within shared buildings are not new, they have reentered the housing conversation thanks to a new startup. With locations in Palo Alto, San Francisco and Bakersfield, Brownstone Shared Housing has converted two homes and an office space into dwellings for dozens of people, with rents ranging from $500 to $900 per month. The basic pods are a very cozy 3.5 feet wide and 4 feet tall, just big enough to fit a twin mattress. They feature amenities such as charging stations, LED lights and individual climate control systems. Residents share bathrooms and utilize storage lockers for their belongings, most of which won’t fit into the pods. And even though $500 to $900 may sound like a lot for such limited space, the rates are far cheaper than most alternatives on the traditional rental market. Don’t believe me? Try this: in Bakersfield, the median studio apartment rents for $995, according to Zillow. In San Francisco, the figure is $2,200. And in Palo Alto, the median studio rents for $2,300. California’s housing crisis has been a key factor in a mass departure of people from our state. Some 500,000 more Californians left in a recent two-year period than arrived. And about 40% of the state’s residents are considering leaving, according to a recent poll, with housing cited as their main concern. The company’s founders, James Stallworth and Christina Lennox, have themselves experienced housing insecurity. Lennox, 29, and Stallworth, 28, quit their jobs three years ago, started their company and opened the first house (a converted rental home in Palo Alto) a year later. The Bakersfield pods are located in a house Lennox owns. And business is booming. “We have 50 beds between our three properties,” Stallworth said, “and 49 are booked.” The co-founder said this is just the beginning. “Our goal is to solve the problem,” he said of the housing crisis, “so we’re definitely planning on expanding.”

Robin Williams’s Former San Francisco Manse Hits the Market for $25 Million. If you’re a Robin Williams fan with a $25 million budget, I’ve got the perfect house for you. The Wall Street Journal reports that the late Oscar winner’s former San Francisco abode, complete with six bedrooms, a speakeasy-style hidden bar, and a loggia offering views of the Golden Gate Bridge, is officially up for grabs. The dwelling is listed with Steven Mavromihalis of Compass, who says Williams and former partner Marsha Williams “took the house down to the studs” and rebuilt it in the early 1990s in a quote shared with AD. “They expanded the home to its current 10,598 square feet on three levels,” Mavromihalis says. “However, they took great pains to preserve the rare and valuable building materials used in 1926, which are simply no longer available in the construction of modern homes.” In classic Robin Williams fashion, the entertainer apparently took it upon himself to put some whimsical touches into the abode, including a hidden passageway between the children’s bedrooms. On the home’s exterior, the family added iguana and turtle metal figures that appear to be crawling up the façade—a tad more fun than your average gargoyle. Born in Chicago, Robin Williams was widely known for his comedic chops but also earned acclaim for his more dramatic roles, including an Academy Award-winning turn in Matt Damon and Ben Affleck’s celebrated 1997 drama Good Will Hunting. His 2014 death was ruled a suicide, and his family has spoken out in the years following to educate the public on Lewy-body dementia, a disease he was diagnosed with posthumously that they explain as having contributed to his depression.

Feisty Santa Cruz Otter. If you recall, I wrote about an aggressive otter in Santa Cruz earlier this summer. Remember loyal readers? Sea Otter 841 was first spotted in July harassing Santa Cruz surfers, bullying them off their surfboards, some of which she even took bites out of. Wildlife officials attempted a capture her out of fear that she'd hurt someone, but to no avail. They also noted that she had been raised in captivity and released several years ago and was still adjusting to her new-found freedom. Sea Otter 841 spent the summer terrorizing Santa Cruz surfers and kayakers. But a possible explanation for her behavior only recently emerged when U.S. Fish and Wildlife Services confirmed the otter gave birth to a pup. Ahh, I knew it all along. In a statement, officials said her behavior could have been attributed to her pregnancy. Wildlife officials said her reign of terror could have been caused by "hormonal surges related to pregnancy." While wildlife biologists suspected Sea Otter 841 may have been pregnant this summer, they were unable to verify the pregnancy without capturing the sea otter to perform a full health evaluation. Officials say they will continue to monitor Sea Otter 841, but have no plans to capture her or her pup any time soon. They are reminding people that southern sea otters are protected by the Endangered Species Act, Marine Mammal Protection Act and state law. They're also urging people to keep distance between the otter and her offspring, which will give the pair the best chance of surviving in the wild.

The Largest Onion in the World. A vegetable grower from Guernsey England has grown an onion that is believed to be the biggest in the world. Gareth Griffin's onion weighs an eye-watering 19.7 pounds at the Harrogate Autumn Flower Show last Friday, beating the previous world record of 18.68 pounds. Green-fingered Griffin, 65, said he had grown the vegetable in a polytunnel at his home in La Villiaze with additional lighting and automatic irrigation. But show organizers caution that the onion's status as the world's largest is subject to verification by the Guinness World Records. Mr Griffin told the BBC he developed his interest after seeing his father growing giant onions. He said he "really got into" it after going to the world championships 12 years ago. "I nearly got it in 2014 but was a couple of ounces off the record," he said. "I've tried ever since and this year it finally went well," he said. "I suppose it’s quite a bit bigger than a football and more of a rugby ball shape." Griffin explains he tried two different growing techniques, which included "having the right seeds" and "treating them very well." This involved using 24-hour lighting for several weeks and an automatic irrigation system in a polytunnel "so he could still go on his holidays." Griffin had to transport the onion over to the mainland by ferry in his motorhome. "Don’t worry, it was well cushioned in a box and I didn’t let it out my sight." He added that his giant onion is "perfectly edible" but would be "very mild in taste" and that its seeds will have "excellent potential." Griffin says the Guinness Book of World Records has received the information to process and the record confirmation is "pending." Frankly, the whole thing brings tears to my eyes.

Real Estate Rockstars Return. When it comes to rock n’ roll, Dawn and Bill Twyford rock the house(s). This Colorado couple have investing down to a science. With hundreds of deals and properties coming and going, I can’t keep track. They have not been to California in years - so we are excited to welcome them back. Don’t miss their presentation and prepare to “dance with joy” at the strategies they use to invest. The title of their presentation is “Music to My Ears; Seven Strategies That Will Rock Your World.” Thursday night, November 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 (Culver City adjacent). FREE Admission. Metered and free parking. RSVP: www.LARealEstateInvestors.com.

Vendors Expo Returns! Attend our super-duper world-famous "Real Estate Vendors Expo." Thursday night, November 9, 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 you invest in real estate. And stick around after the expo for our monthly meeting and special presentation by real estate rockstars, Dwan & Bill Twyford. 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.

Investment Fund. If you're just starting out as an investor and frustrated because you don't know where to look for good deals, or can't find any deals, or don't have enough money to buy a property, I’ve got the perfect solution for you. We are very excited to announce the formation of a new Investment Fund to buy fixer upper properties around Southern California. Best of all, the entry level to invest is purposely very low ($5,000 - $10,000, or more) to encourage your participation. The idea is we’re going to find, fix, and flip a distressed property and share in the profits. And as an investor we want you to hangout (if you want) and learn how the process works so that you can eventually do it yourself! So, if you’re interested, please let me know... 

This Week. Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. It will be an extremely light week for economic reports. The Trade Deficit will be released on Tuesday and Consumer Sentiment on Friday. 

Weekly Changes:

10-Year Treasuries:             Fell    035 bps

Dow Jones Average:           Rose  500 points

NASDAQ:                            Rose  700 points

Calendar:

Tuesday (11/7):                    Trade Deficit

Thursday (11/9):                  Jobless Claims

Friday (11/10):                     Consumer Sentiment

For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

310-409-8310