Monday Morning Quarterback

(Monday, January 29, 2024)

According to Redfin, the median sale price for a home in the Golden State was up 8.5 percent for 2023, while the number of homes sold dipped by nearly 7.5 percent. The impacts were starker for homebuyers in some markets: The firm found the areas with the fastest-growing sales prices were Dublin (+44.2%), Costa Mesa, (+30.4%), Yorba Linda (+26.1%), Pittsburg (+25.1%) and Poway (+24.5%). Analysts at Zillow and Redfin see the market marginally improving for homebuyers across the country in 2024, with more homes for sale, giving buyers more options with slightly better affordability. The Bay Area could experience some of the biggest price drops in the U.S., led by a predicted 6.1 percent drop in the San Jose metro area, which includes Palo Alto and San Benito County. Zillow predicts the San Francisco metro will see a nearly 5 percent dip, with Los Angeles posting a 2.2 percent decrease. Some realtors are less certain prices will ease, telling the San Francisco Chronicle that the region still has plenty of interest among buyers and predicting lower interest rates will fan competition and continues to drive up prices. Bottom of Form

This month, the California Association of Realtors forecast another 6.2 percent rise in median prices over the next year. "CAR feels optimistic in its 2024 housing market forecast with falling mortgage rates, rising prices, economic expansion, and with demand for homes strong," the association wrote. "Housing affordability will remain flat. Out of all of it, and despite an outmigration of Californians to low-tax states, the state remains viable and people want to buy homes here." Affordability continues to be a challenge in the Golden State and across the country, according to Redfin, which this month reported only 15.5 percent of homes for sale this year were affordable for the typical household. Redfin says that figure was the lowest share on record, down 5 percent from the year before, and down a whopping 40 percent from the pre-pandemic boom. However, Redfin analysts are optimistic that affordability will begin to improve in 2024. Of course, there are plenty of other economists who disagree with Redfin’s findings. In other real estate news, let’s get down into the weeds… 

Sales of New Homes Surged In December. Year over year, new-home sales are up 4.4%. Sales of newly built homes in the U.S. jumped in December as falling mortgage rates sparked home-buying interest. U.S. new-home sales rose 8% to an annualized rate of 664,000 in December from a revised 615,000 in the prior month, the Commerce Department reported last Thursday. The number is seasonally adjusted and refers to how many homes would be built over an entire year if builders continued at the same pace every month. Of course, new-home sales are still far below a recent peak of over 1 million in August 2020. The median sales price of a new home sold in December fell to $413,200 from $426,000 in the prior month. The supply of new homes for sale fell 6.8% between November and December. Most of the U.S. reported an increase in sales of newly built homes, with the Northeast notching a 32% increase in December, followed by more modest increases of around 10% in the Midwest and the South. Only the West saw a drop in new-home sales. Overall, sales of new homes are up 4.4% compared with last year. New-home sales continue to be a bright spot in the housing sector, and as rates fall, that could boost demand further. The housing market continues to rely on newly built homes amid a persistent lack of resale home listings. (See below.)

Existing Home Sales Declined in December.  Existing home sales ended 2023 on a weak note, falling 1.0% in December to post the worst annual sales since 1995 according to the National Association of Realtors. While the housing market has been facing a series of headwinds, the good news is that the most significant is beginning to abate. Recent optimism around inflation and a Federal Reserve that effectively declared “mission accomplished” has led to a rapid decline in interest rates across the board. For example, though 30-year mortgage rates remain around 7%, they have been trending down since peaking above 8% at the end of October. That said, affordability is still a big concern for buyers. Assuming a 20% down payment, the rise in mortgage rates since the Federal Reserve began its current tightening cycle in March 2022 amounts to a 26% increase in monthly payments on a new 30-year mortgage for the median existing home. Eventually, the housing market can adapt to these increases but continued volatility in financing costs will cause indigestion. In addition, many existing homeowners are reluctant to sell due to a “mortgage lock-in” phenomenon, after buying or refinancing at much lower rates before 2022. That should limit future existing sales (and inventories). Case in point, the months’ supply of homes (how long it would take to sell existing inventory at the current very slow sales pace) was 3.2 in December, well below the benchmark of 5.0 that the National Association of Realtors uses to denote a normal market. A tight inventory of existing homes means that while the pace of sales looks worse than 2008, we aren’t seeing that translate to a big decline in prices. In fact, home prices appear to be rising again, although modestly, with the median price of an existing home up 4.4% from a year ago. Putting this together, economists expect a bottom in sales in the near future and a modest recovery in 2024.

Pending Home Sales Post Biggest Jump Since June 2020. U.S. pending home sales shot up in December as falling mortgage rates brought buyers back into the market. Pending home sales rose 8.3% in December from the previous month, according to the monthly index released last Friday by the National Association of Realtors. (Pending home sales reflect transactions where the contract has been signed for the sale of an existing home, but the sale has not yet closed.)  Economists view it as an indicator of the direction of existing-home sales in subsequent months. The jump in pending-home sales was the largest since June 2020, when it rose by 14.9%. Economists were expecting pending home sales to increase by 2% in December. Transactions were up 1.3% from last year. The NAR also released an updated forecast for existing-home sales. The group expects existing-home sales to increase in 2024 by 13% from last year, to a 4.62 million pace. They expect the U.S. Federal Reserve to cut interest rates four times in 2024 and the 30-year mortgage to “bounce along” in the 6% to 7% range for most of the year. The increases in contract signings and in mortgage applications, reported earlier in the week, indicate that there is pent-up demand from buyers who are motivated by falling mortgage rates. But the housing market’s recovery is still limited by supply. Unless the so-called “lock-in effect” fades and more homeowners decide to sell their homes, sales will not be able to increase significantly. “The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” Lawrence Yun, chief economist at the NAR, said in a statement. “Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand,” he added. 

Homelessness Continues to Rise in California & Across the Country. Contrary to popular belief, homelessness is not just a problem in Los Angeles. In fact, a new federal study reveals there are more unhoused people in New York City than L.A., while the number is on the rise overall in the United States. According to the U.S Department of Housing and Urban Development's “2023 Annual Homelessness Assessment Report” released last Friday, the number of people experiencing homelessness increased by 12%, or by roughly 70,650 more people this year. "On a single night in 2023, roughly 653,100 people (or about 20 of every 10,000 people in the United States) were experiencing homelessness," the report stated. "Six in ten people were experiencing sheltered homelessness (that is, in an emergency shelter (ES), transitional housing (TH), or safe haven (SH) program) while the remaining four in ten were experiencing unsheltered homelessness in places not meant for human habitation." That single night count, referred to as the "Point-in-Time (PIT) count," is the highest ever recorded since the agency began reporting on it in 2007. Though Mayor Karen Bass is tasked with reducing the unhoused crisis unfolding in our city, and frequently criticized for not getting enough people off the street in a shorter amount of time with all the money being invested, L.A. isn't as severe as New York City. The Big Apple leads the nation with 88,025 homeless people, while L.A. city and county has the second-highest amount with 71,320 people experiencing homelessness. Seattle has the third-highest amount with 14,149. As a state, however, California has the largest homeless count by far, with 181,399, compared to New York's 103,200. Year-over-year, New York saw a 39.1% increase (29,022) from 2022 while California's homeless population grew 5.8% (9,878). Another unflattering statistic: California accounted for 49% of all unsheltered people in the country with 123,423 unsheltered individuals living in the Golden State.

LA Office Availability Hits Record High To Finish 2023. Office availability reached a record-high 26.7% in the Los Angeles area to finish 2023, according to a new report from Savills. Leasing activity in the final quarter of 2023 totaled just under 2.2M SF, down 28% from nearly 3M SF in the third quarter, Savills' year-end report says, while sublease figures rose slightly to 10.4M SF from 10.3M SF in the third quarter. The San Gabriel Valley, Santa Clarita Valley and Century City submarkets had the lowest availability rates at 12.6%, 19.5% and 19.6%, respectively. Park Mile, roughly the stretch of Wilshire Boulevard between Highland Avenue and Wilton Place, had the highest availability at 43.5%. Government leases buoyed the activity in Q4, making up three of the top 10 leases by square footage. In addition to the county’s big Long Beach lease, the county executed leases in the San Gabriel Valley and Hollywood for 50K and 30K SF, respectively. But office owners aren’t out of the woods in 2024 just yet, with more foreclosures and distressed sales expected amid higher costs to refinance. There were some glimmers of hope. Although discretionary leasing was uncommon in 2023, there is some "cautious optimism" that the end of the writers and actors strikes could deliver a boost from entertainment and media tenants. Trends of both a flight to quality and a flight to capital are expected to persist if that demand does materialize, the report's authors wrote. 

U.S. Foreclosure Activity Increases From 2022 But Still Below Pre-Pandemic Levels. ATTOM real estate database released its Year-End “2023 U.S. Foreclosure Market Report” which shows foreclosure filings (i.e. default notices, scheduled auctions and bank repossessions) were reported on 357,062 U.S. properties in 2023, up 10 percent from 2022 and up 136 percent from 2021. Those 357,062 properties with foreclosure filings in 2023 represented 0.26 percent of all U.S. housing units, up slightly from 0.23 percent in 2022. “Reflecting on 2023, we see the recent rise in foreclosure activity as a market correction rather than a cause for alarm. It signals a return to more traditional patterns after years of volatility,” said Rob Barber, CEO at ATTOM. “Our data suggests that while foreclosure activity may fluctuate, it’s unlikely to approach the highs seen in the last decade. Instead, we foresee a market that is more reflective of broader economic trends, with foreclosure filings becoming a more predictable aspect of the housing landscape. This shift offers a silver lining — the opportunity for investors and industry professionals to plan and strategize with greater confidence and insight.” Lenders started the foreclosure process on 270,222 U.S. properties in 2023, up 9 percent from 2022, up 193 percent from 2021. States that saw the greatest number of foreclosure starts in 2023 include the usual culprits, California (29,180 foreclosure starts); Texas (28,533 foreclosure starts); Florida (27,427 foreclosure starts); New York (17,330 foreclosure starts); and Illinois (13,764 foreclosure starts). Counter to the national trend, 6 states saw an increase in foreclosure starts from 2019. They included Indiana (up 73 percent); Idaho (up 70 percent); Michigan (up 15 percent); Nevada (up 10 percent); and Minnesota (up 9 percent). Those metropolitan statistical areas with a population greater than 1 million that saw the greatest number of foreclosure starts in 2023, included New York, New York (18,464 foreclosure starts); Chicago, Illinois (11,620 foreclosure starts); Houston, Texas (9,476 foreclosure starts); and our own Los Angeles, California (8,835 foreclosure starts).

As Supply Swells, Apartment Rents Dip And Investors Drop Out. The U.S. multifamily market continued to soften in December with average monthly rents dropping 1% annually to $1,379, according to new data from ApartmentList. In fact, in the last year, rents declined in 60 of the 100 largest American cities, the company reports. Rents dipped monthly as well, ticking down 0.8% in the fifth straight month-over-month drop. While rental declines toward the end of a year are in line with most markets' typical seasonal patterns, with fewer renters moving, late 2023's dip has been sharper than what is normally experienced, the ApartmentList reports. A record period of apartment construction across the country is culminating in a rush of new supply that is dampening rent growth despite demand from renters who can't afford to purchase a home. CoStar is forecasting roughly 433,000 new apartment units to be delivered in 2024, while RealPage predicts 670,000 new multifamily units. Interestingly, investors are responding to the reversal in rent growth by buying fewer apartment properties, Multi-family Dive reports. Through November, multifamily sales were down 68% year-over-year to $5.1B. Prices also fell, down 12.1% compared with a year earlier, according to MSCI. Modest rent increases are forecast for 2024. Yardi Matrix is predicting that U.S. rents will increase 1.5%, while CBRE forecasts 1.2% growth, both lower than the 3.1% rate of inflation reported in November. Even so, millions of renters are still squeezed by previous years' rent hikes, with renters by necessity (those who want to buy a home but can't) spending more than 31% of their income on rent. In contrast, renters by choice spend less than 28%.

How You Text Is Giving Away Your Age. Did you know correct grammar is so last generation. If you’re still using proper punctuation and capital letters while texting, your age might be showing, as typing in all lowercase has become a Gen Z hallmark. The younger generation believes the letters “look better” than “ugly” capital letters, and saves full sentences and good grammar for the classroom. “Full sentences is a school thing and we should leave the school stuff at school,” explained one Gen Alpha youngster in a viral TikTok video. Her friend chimed in: “Normal texting seems too professional. I only text normal if I’m upset or mad.” But a telltale sign of aging (other than the first hints of crow’s feet and forehead wrinkles) is toggling auto-capitalization “on” in their phone settings. Gen Z has ushered in yet another digital revolution: typing strictly in lowercase letters. Noël Wolf, a language, culture and TikTok expert from the language learning program Babbel theorized that Gen Z might be more prone to using lowercase letters because it feels “more casual and relaxed,” appropriate for texting or posting online. “Typing in lowercase is often faster and easier than including grammatically expected uppercase letters, aligning with the fast-paced nature of online communication,” she told Metro. “Lowercase text can also appear more visually appealing, softer, and less imposing compared to uppercase text.” The younger generation thinks typing in lowercase “looks better,” while capital letters are “ugly” and too “professional.” Capital letters, on the other hand, are perceived as “shouting or expressing strong emotions” in the digital age, almost like “raising one’s voice” in real life. Good to know.

520 West 28th Street. One of the most architecturally unique apartment buildings ever built sits proudly in New York City. Known as “520 West 28th Street” (also known as the “Zaha Hadid Building”) it was designed by the late great architect Zaha Hadid. This building was her only residential building and one of her last projects before her death. The building is located along Manhattan’s High Line. The building consists of 11 floors, four elevators, and 39 units. It was completed in 2017. The building has four art galleries located at street level. The building also has a sculpture platform with art curated by Friends of the High Line. The building features laser-cut stainless-steel trim that was fabricated and finished in Broomall, PA by M Cohen and Sons. Some of the apartments feature balconies. The building features curvilinear geometric motifs, a signature of Zaha Hadid. The building is L-shaped and has a duplex penthouse that is recessed from the rest of the building. In the main entrance of the building, there is an interior massive carved natural stone installation, which was supplied by Greco Marble SA, the supplier of all Greek natural stone of the building (including the main entrance floor, as well as private areas). The building features model units designed by Jennifer Post and West Chin. The units feature kitchens made by Boffi, which were designed by Zaha Hadid and Gaggenau appliances. The bathrooms are fitted with smart glass. Lighting design for the interiors, including the lobby, amenities areas and select portions of the individual units, was done by Office for Visual Interaction.

How to Invest in Airbnb Short-Term Rentals. Matt Floyd and Craig Gerulski started just like you. They attended the San Diego’s Outback RE meetup back in 2020 and decided to work together. Since then they have built a seven-figure short-term rental business with a portfolio of 30 properties under management, 5 rental arbitrage units and six short-term rental properties in San Diego, Nashville and Scottsdale. And they continue to grow, now negotiating to leverage their expertise to acquire hotels around the country. And the best news of all is that you can do it too! Don’t miss Matt and Craig's presentation. Thursday night, February 8, 2024, 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. RSVP: LARealEstateInvestors.com. 

Vendors Expo Returns! Our world-famous, super-duper "Vendors Expo" returns on Thursday night, February 8, 2024. The Vendor Expo opens starting 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. Stick around after and enjoy our guest speaker. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission. Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

This Week. The next Fed meeting will take place this Wednesday. While no change in rates is expected, investors will look for guidance on the anticipated timing of rate cuts later in the year. For economic reports, the ISM national manufacturing index will come out on Thursday. The key Employment report will be released on Friday, 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.

Weekly Changes:

10-Year Treasuries:            Flat    000 bps

Dow Jones Average:          Rose  200 points

NASDAQ:                           Rose  150 points

Calendar:

Wednesday (1/31):              Fed Meeting

Thursday (2/1):                    ISM Manufacturing

Friday (2/2):                          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