Economic Update (Martin Luther King Day)

Economic Update

(Martin Luther King Day)

It’s getting hotter. Can you feel it? 2021 was the Earth’s sixth-hottest year on record. The planet’s average land and ocean surface temperature last year was 1.51 degrees higher than the 20th century average, the National Oceanic and Atmospheric Administration reports. Not to be outdone, NASA also concluded that 2021 was the sixth-warmest year on record (and tied with 2018). Experts from both agencies say the global warming trend was being driven primarily by greenhouse gas emissions. Last year was the 45th consecutive year that saw global temperatures rising above the average, meaning that the planet has not had a colder-than-average year since 1976, according to the report. What’s more, the years 2013 through 2021 all rank among the ten warmest years since record keeping began in 1880. The report further predicts there’s a “99% chance” that 2022 will also rank in the top 10. The United States overall fared even worse than the globe, with 2021 ranking as the fourth-hottest year on record in the contiguous U.S., according to NOAA. Many of the acute warming effects were felt in the West, where exceptional drought, extreme wildfires and simmering heat waves coincided with California’s hottest summer on record! A heat wave in the Pacific Northwest in June shattered all-time high temperature records in Washington and Oregon, while the Dixie fire, which sparked in July in Plumas County, went on to become the second-largest wildfire in California. Experts predict we will see more and more extreme heat waves, more intense rainfall, more severe wildfires, and more coastal flooding in the years ahead. So fasten your seatbelt because 2022 is going to be a wild “over-heated” ride…

Retail Sales Sink in December. Sales at U.S. retailers such as Target and Amazon sank 1.9% in December (the biggest drop in 10 months) as the omicron variant spread like wildfire and shoppers confronted higher prices and shortages of popular products. If high inflation is taken into account, retail sales were even more depressed in December. Retail sales are a big part of consumer spending and offer cues on the strength of our economy. Sales rose sharply through most of last year before tapering off in the waning months of 2021, suggesting that fourth-quarter economic growth won’t be quite as strong as expected. Clearly, our economy suffered a letdown toward the end of 2021 because of omicron. The highly contagious coronavirus strain has infected millions of people and force many to miss work. Persistent shortages of supplies and the highest inflation in almost 40 years have also hurt. Customers can’t find what they want and prices for many goods and services have risen sharply. Households still have plenty of savings, however, and economists predict spending will improve if the pandemic finally starts to peter out and inflation gets brought under control. Sales fell last month in almost every major retail category. The biggest decline, 8.7%, took place among internet retailers such as Amazon. It was the largest drop in a year for the generally fast-growing segment. Sales also fell 7% at department stores, 5.5% at furniture stores, and nearly 3% at electronics stores such as Best Buy. Auto sales, which account for 20% of all retail receipts, slipped 0.4%. Car sales tumbled last year after a shortage of computer chips knotted up production. Receipts at bars and restaurants, for example, sagged 0.8% in December. Omicron discouraged people from dining out, economists say, and spurred some states to add new restrictions such as passport mandates. The only retailers to post higher sales last month were do-it-yourself stores such as Home Depot and pharmacies, perhaps because of people buying more medicine and tests amid the omicron outbreak.  

Consumer Prices Rise in December and Push Inflation to 40-year High. Consumer prices rose in December to push the increase in the cost-of-living last year to a nearly 40-year high of 7%, indicating high U.S. inflation is likely to persist well into 2022. A separate measure of consumer inflation that strips out volatile food and energy prices rose 0.6% last month, government announced last week. That pushed the increase over the past 12 months to 5.5% from 4.9% (a 31-year high). Inflation has soared due to strong customer demand and ongoing labor and supply shortages. While price pressures are likely to ease in 2022, economists estimate the rate of inflation will probably exceed 3% by year end. By contrast, inflation averaged just over 1.5% a year in the decade prior to the pandemic. The Federal Reserve, the nation’s inflation watchdog, has sped up plans to remove stimulus for the economy. The central bank is also expected to raise short-term interest rates soon to combat high inflation. The main drivers of inflation in December were new and used cars, housing and food. The cost of used vehicles jumped 3.5% last month and the price of new cars and trucks rose 1%. Auto prices have surged in the past year largely due to a shortage of computer chips that have limited production. Rent rose 0.4% for the third month in a row as housing emerges as a bigger flash point of high inflation. It’s the single biggest component of the CPI and the largest expense for most households. Rents had risen slowly during most of the pandemic. The cost of food climbed 0.5% in December. Grocery prices soared 6.5% in 2021, marking the biggest increase in 13 years. The cost of clothing, home furnishings and medical care also increased last month. Prices also fell for auto insurance and recreation. With the exception of energy prices, which are dropping, the main drivers of the highest inflation since 1982 will remain high for the foreseeable future.

Mortgage Rates Soar to Highest Level Since March 2020. Interest rates are surging on the heels of data showing a concerning outlook for inflation — and buyers are to set to pay the price. The 30-year fixed-rate mortgage averaged 3.45% for the week ending January 13, up nearly a quarter of a percent from the previous week, Freddie Mac reported Thursday. It’s the highest average rate for the 30-year loan since March 2020 when the coronavirus pandemic first sent shockwaves through financial markets amid the first wave of lockdowns. Comparatively, a year ago, the 30-year fixed-rate mortgage averaged 2.23%, near record-low levels. The 15-year fixed-rate mortgage, meanwhile, rose 19 basis points over the past week to an average of 2.62%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.57%, up 16 basis points from the previous week. Mortgage rates skyrocketed in response to the latest data on inflation. As shown above, the Consumer Price Index released last Wednesday showed that inflation is at a nearly 40-year high, with prices for goods and services having risen 7% over the past year. Such a high rate of inflation is a major concern to the Federal Reserve, which had already indicated it would increase interest rates and scale back its bond-buying activity in an attempt to right-side the economy. But the central bank’s initial plan may now be out the window. Keep in mind, the Fed’s rate hikes would not have a direct impact on mortgage rates, as they tend to follow the direction of the yields on long-term bonds such as the 10-year Treasury.  Instead, higher rates will materialize as investors begin to make assumptions about the Fed’s plans for curbing inflation. Higher rates aren’t likely to cause home buyers to fully pump the brakes on their plans to purchase property, either. But it will have an impact at the margins for buyers who may struggle to afford the double whammy of higher interest rates and rising home prices.

Big-Box Retailers Are Adding Smaller Stores. The giant blue stores with large yellow letters visible for miles from the freeway will not become a thing of the past just yet, but IKEA is one of many retailers testing smaller-format stores. The Scandinavian furniture giant announced earlier this year its intention to open “planning studio” locations in the Long Beach Towne Center and at the Westfield Santa Anita mall in Arcadia. Both are expected to open in the spring. Ikea wants to be within 30 minutes of its customers, and the two planning studios (which are in addition to the company’s big box stores in Burbank, Covina and Carson), would allow their Swedish meatballs to be closer to more people. The Planning Studios will allow customers to book appointments with design specialists to plan and select furniture for their homes. No word on the meatballs. Customers do not take things home with them; the goods are delivered instead. The Long Beach location will be roughly 8,000 square feet while the Arcadia location is a little over 9,000 square feet. Of course, Ikea isn’t the only retailer opening small-format stores. Chains like Target, Superior Grocers, Nordstrom, and Bloomingdale’s have all tested small-format stores nationwide as well. Actually, the push toward small-format stores started 10 years ago with ecommerce and Amazon. The rapid growth of ecommerce has affected a lot of these retailers, and they’ve shrunk. Covid forced that evolution to happen much faster. Stores are finding smaller formats appealing for several reasons. Small-format stores are more competitive with online sites and are valuable in L.A. because of “the scarcity of land.” Rents are lower for smaller stores which can result in savings. The smaller concepts potentially allow for better pricing and allows these retailers to be competitive with ecommerce companies that are out there. There’s more supply of them in terms of the existing retail supply, so a tenant has a lot more options when they are looking at existing shopping centers in a geographic area. After all, a store looking for 40,000 square feet will only have a very limited number of options while a store needing only 8,000 square feet has a lot more choices.

Santa Monica Helping Families Evicted Long Ago for the 10 Freeway. In the 1950s, as the construction of the 10 Freeway cut through Santa Monica’s Pico/Michigan neighborhood as it stretched from downtown Los Angeles to the Pacific, approximately 600 families (predominately Black families), lost their homes. More than half a century later, Santa Monica is offering a chance for some of them to come back. I write about it today because starting this month, the city will offer affordable housing to those forced out by the freeway construction. Children and grandchildren of those who lost their homes also are eligible. Santa Monica’s act of “civic penance” is an attempt to recognize the harm done to largely Black communities during the post-World War II era of freeway building and urban renewal. The program is part of a nationwide movement to compensate residents for racist harms related to housing and property. The efforts gained momentum after the murder of George Floyd in spring 2020. Nationwide, more than 1 million people lost their homes in just the first two decades of interstate construction alone. Early on, highway planners targeted many Black neighborhoods for destruction, and displaced families often received little compensation. The legacy of those decisions remains in tourist-friendly Santa Monica. Fewer Black people live in the city today than in 1960, before the freeway was built. Those pushed out say people they meet often are surprised to hear Santa Monica used to have a robust Black community. Renters got nothing when they were forced out; only their landlords did. Homeowners lost the ability to earn the generational wealth from owning property near the Southern California coastline. Santa Monica officials say they realize the program cannot make up for what was taken, but they’re going to try. To qualify, residents must prove that they or their families were displaced and meet income requirements, generally earning no more than $66,250 for a single person or $94,600 for a family of four. They would get apartments with rents now restricted at $1,891 a month for a one-bedroom through $2,896 for a four-bedroom — amounts far less than what you could find on the open market.

California College Students Living in Vans. If you see students sleeping in vans at a UC campus near you, don’t be surprised. Homeless college students is the latest “California crisis.” This urgent problem is a campus affordable housing crisis hitting thousands of students across California’s three public university systems — leaving some unsheltered, others with mounting debt burdens and many filled with anxiety and stress. More than 16,000 students at the University of California and California State University were on waitlists for housing this fall, despite construction of 36,000 beds by both systems since 2015, according to a new report by the state Legislative Analyst’s Office. UC Berkeley alone turned away more than 5,500 housing requests this fall, and 40% of undergraduates are unable to live in the city due to scarce supply and high rents, the university reports. For the California Community Colleges system, only 12 of 116 campuses have housing programs, which shelter only 2,400 students, an Assembly subcommittee memo said. Why? Because the campuses traditionally weren’t meant to offer residential life for commuter students. But the need is so high, with 20% of community college students reporting homelessness, that 81 colleges have submitted applications for state housing grants to plan or construct dorm projects. Desperate to address the hardship, Long Beach City College rolled out a pilot program this month to allow 15 students living in cars to park overnight in a campus parking structure. The growing housing stresses are rooted in a confluence of factors. Under political pressure to boost enrollment, UC added 27,583 undergraduates — but only 22,000 beds — since 2015. Worse, community protests, environmental concerns, and litigation have slowed down or halted at least six UC housing projects in the last three years. The good news is that about half the Cal State system’s 23 campuses have increased student housing (about 14,000 beds in the last five years) with another 23 projects to add 13,300 more beds under construction or being planned, the Legislative Analyst’s Office reports. Availability varies widely, with Cal Poly San Luis Obispo housing 36% of students while Cal State Bakersfield just 3%. System leaders say they want to expand housing in part because research shows that students who live on campus have higher grades and graduation rates than those who don’t.  

World’s Largest Wildlife Crossing Is Finally Underway in Agoura. The Wallis Annenberg Wildlife Crossing, proposed for the Route101 freeway on the western side of Los Angeles County, will allow mountain lions to easily crossover eight lanes of traffic, substantially expanding their habitat. As of this week, additional funding has been secured for the $87 million crossing, including a final $10 million allocated by Governor Gavin Newsom's new budget. Now the project is planned to break ground this spring, and when completed sometime in 2023, the nearly one-acre bridge will be the largest of its kind anywhere in the world and the most ambitious in such a densely (human) populated region. The crossing is planned for Liberty Canyon, where the 157,700-acre Santa Monica Mountains National Recreation Area extends over the 101 freeway, bridging a barrier that currently prevents wildlife from moving north to other open spaces. While many wildlife crossings have a more utilitarian design (a bridge in Utah for example, with a viral webcam looks more like a gravel drainage ditch), the Annenberg Wildlife Crossing will be a lush, planted parkway with matte materials to deflect bright headlights and insulation to quiet the roar of cars below. Landscaping with native flora is currently being propagated in a nursery, ensuring that the 200-by-165-foot bridge will attract pollinators like butterflies and bees and that the naturalized path will provide safe passage for mountain lions as well as other animals (like coyotes, bobcats, rabbits, snakes, and toads), hemmed in by development. Mountain lions are a protected species in California, but if the state’s populations are unable to interact with each other, they face a more existential threat than speeding cars or encroaching sprawl. The ability to roam over a wide region (males can have a 150-square-mile territory), helps prevent in-breeding; low genetic diversity can cause physical abnormalities that lead to reproductive issues and eventually extinction. According to the Federal Highway Administration, about 300,000 wildlife collisions happen on U.S. roadways each, and many more not reported. This solution is about creating more corridors similar to this one, where humans can move around safely without murdering other living things (or each other). 

New Year’s Resolutions. There’s a reason why New Year’s resolutions are so popular—the end of one cycle and the beginning of another is the most natural time for reflection. With the advantage of hindsight, you can look back over last year and see which accomplishments you made, which plans fell through, and how the surprises that came your way shaped your life. Then, you can be a better judge of what things you’d like to improve on throughout the coming year, and resolve to do so. With that in mind, let’s take a look at some of the most popular New Year’s resolutions for inspiration, and learn how to keep your own resolutions specific, measurable, and achievable. With a little planning and support, you can make 2022 a great year.  Here are a few of the most popular resolutions:  

1. Exercise more — There are so many different ways to fit more exercise into your routine, and it’s important to remember that everybody is on their own fitness journey.

2. Lose Weight. Who hasn’t make this a resolution at one time or another. It seems every year someone is determined to follow a new eating regime. 

3. Make new friends — This is a resolution that you can’t force to happen, but you can put yourself in a good position to meet interesting people.

4. Save money — Saving money by doing something could be as simple as putting a percentage of your paycheck into a new savings account.

5. Lower stress — This resolution often goes hand in hand with others, because making positive changes in your physical health, social life, and financial wellbeing are sure to lower your stress.

6. Invest in Real Estate — Ok, not really. But still listed frequently by successful investors. After all, why not. Real estate investing is fun, the profits are great, and you can never have enough.

“An Evening with HGTV’s Amy Mahjoory.” Our February meeting will be held on Thursday night, February 10, 2022. And we have a very special guest to celebrate the New Year. Amy Mahjoory, star of HGTV’s hit show “House Hunters” will be visiting us from Austin, Texas. Besides being one of the most popular hosts on HGTV, Amy is a fantastic investor, and an expert on raising capital for real estate deals. If you’re worried about raising funds for your next deal (without borrowing from your friends and family), don’t miss Amy’s presentation. Our meeting will be held at our new home at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (its really Culver City, but don’t tell anyone). FREE parking on the Iman parking lot and metered street parking. FREE Admission. Please RSVP at www.LAREIC.com. 

Vendors Expo Returns! Our world-famous super-duper "Real Estate Vendors Expo" returns on Thursday night, February 10, 2022. The Vendor Expo will be open starting at 6:30 pm. We'll have a collection of 40+ of the finest vendors featuring real estate products and services you will need to become a successful investor. Our Vendor Expo will be held at our new home, the Iman Cultural Center 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (it’s really Culver City, but don’t tell anyone). FREE Admission. FREE on the Iman parking lot and metered street parking. Please RSVP at www.LAREIC.com.

Basic Training Boot Camp. On Saturday, February 26, 2022, 9:00 am to 6:00 pm, is our semi-annual Real Estate Basic Training Boot Camp. Everything you ever wanted to know about real estate investing, but were afraid to ask. The best news of all is that this Boot Camp will be LIVE and In-Person! No Zoom! The cost of the Boot Camp is $149.00 per person if paid before February 19th. After February 19t^h, the price jumps to one million dollars! So register now! Gold Members (and former Boot Campers) can attend for FREE. You can register at LAREIC.com.

Weekly “Rubbing Elbows” Podcast. LAREIC proudly hosts a weekly podcast, “Rubbing Elbows” staring our Director of Acquisitions, Chuck Dorfman, and his co-host, Lior Yehuda. Every Thursday live at 8:00 pm (and streaming anytime thereafter), Chuck and Lior interview real estate professionals sharing their insights and advice. Its real estate uncensored and unfiltered. These guys may be unorthodox, but they know what they’re talking about. You can enjoy “Rubbing Elbows” wherever you view podcasts (i.e. YouTube, Facebook, Google, Apple) and LAREIC.com/RubbingElbows.

This Week. Looking ahead, investors will closely follow news on the omicron variant and will look for additional Fed guidance on the timing for future rate hikes and balance sheet reductions. Mortgage markets will be closed today in observance of Martin Luther King Day. Beyond that, it will be a big week for economic reports with a focus on the housing sector data. The National Association of Home Builders releases its Housing Market Index on Tuesday (1/18). On Wednesday (1/19), the Census Bureau reports Housing Starts (i.e. new residential construction data). The National Association of Realtors will report on Existing Home Sales on Thursday (1/20). On Friday (1/21), the Conference Board releases its Leading Economic Index.

Weekly Changes:

10-year Treasuries:             Fell 002 bps

Dow Jones Avg:                  Fell 500 points

NASDAQ:                            Fell 200 points

Calendar:

Tuesday (1/18):                   NAHB Housing Index

Wednesday (1/19):              Housing Starts

Thursday (1/20):                  Existing Home Sales

For further information, comments, and questions:

Lloyd Segal

President

Los Angeles Real Estate Investors Club, LLC

www.LAREIC.com

This email address is being protected from spambots. You need JavaScript enabled to view it.

310-409-8310